Bonnie Woods, 49, an American, said she was "absolutely delighted" with the settlement, which also included a rare apology from the church and payment of an undisclosed figure for costs.
In a statement read at the High Court, Michael Tugendhat QC, her counsel, said she had become a member of the Church of Scientology while living in the US in the 1970s, but left in 1982. After moving to Britain with her husband, Richard, she converted to Christianity in 1991 and later began offering advice and operating a help line for families and friends of Scientologists.
She publicly criticised the church and gave media interviews about her experiences as a member. She also attended vigils outside its bookshop in East Grinstead, West Sussex, handing out a pamphlet highly critical of the church.
In 1993 the church produced a leaflet, showing a photograph of Mrs Woods above the words "Hate Campaigner Comes to Town", which was delivered to neighbours living on the same road and distributed on East Grinstead High Street. It suggested she was motivated by hatred and religious intolerance and described her as a "deprogrammer" who tried to force people from their chosen faith, said Mr Tugendhat. It also cast doubts on her claim to be a born-again Christian.
"The publication of the allegations to her friends and neighbours in the local community was deeply distressing to Mrs Woods," he said. In 1993 she sued the church for libel. The Scientologists countersued with two writs, in 1994 and 1996, which were dropped last year after the church refused to disclose secret documents.
Scientology was created in the early 1950s by the late science-fiction writer L Ron Hubbard, and claims to have 100,000 members in Britain. In the US these include Hollywood stars such as Tom Cruise, Nicole Kidman and John Travolta. New members undergo extensive personality tests and are offered self-improvement courses, which can cost thousands of pounds.
Mrs Woods said demonstrators paraded outside the couple's home and the house was watched. A private detective working for the Scientologists encouraged a creditor to pursue a claim against her and she was declared bankrupt.
After the hearing Mrs Woods, wearing a gold and diamante "Jesus" brooch, called her ordeal a "Job experience", adding: "You learn to live at a level of harassment that most people would find intolerable. But we have a deep faith and sometimes you can learn from suffering."