The payment was made four years after the family, whose mother came to Britain from Nigeria, alleged they were abused and beaten in an unprovoked attack. Charges, including assault and threatening behaviour against the police, were dismissed in 1991.
The Metropolitan Police Commissioner denied the all egations made in court yesterday but agreed to pay the money as a settlement.
The High Court was told yesterday that Cordelia Banks and two of her children, Donna, 21, and Timothy, 28 - then aged 17 and 24 - ran a mobile catering business, Delia's Kitchen Afrika.
The family's solicitor, Fiona Murphy, told Mr Justice Otton that Mrs Banks had returned to their home in Dulwich, south-east London, in June 1990 after a week's trading at the Glastonbury Festival in Somerset, to find her house locked.
While searching for help, Donna Banks was challenged by a mounted police officer, Constable Marianne Taylor, who told her she was 'nicked'.
Timothy Banks had walked to a telephone box where he was allegedly confronted by constables Damian Allain and Darren Rhodes, who forced him to the ground, Miss Murphy said.
When his mother protested, she was held by her arms and around the neck so that she began to choke.
Ms Banks was detained at Streatham police station for eight hours before being freed without charge. Mr Banks, after nearly nine hours, was charged with threatening behaviour and assaulting a police officer. Their mother, held for nearly four hours, was accused of obstruction.
Miss Murphy alleged the officers fabricated false accounts of the incident, accusing the brother and sister of running off. They claimed Mr Banks struggled violently and his mother intervened in his arrest.