Terms of the settlement were not disclosed, and the respective attorneys for Oscar- and Grammy-winner Etheridge, 50, and Michaels, 37, did not comment, reported E! News.
The couple are the parents of 5-year-old twins, Johnnie Rose and Miller Steven.
The resolution, E! said, came shortly after court documents were filed that included a petition in which Etheridge claimed that Michaels "voiced her vehement opposition to sharing equal custody" and considered herself the "primary mother and should unilaterally decide what is best for the children and control their schedule."
Etheridge asked the court to allow her to spend more time with the children and to forbid either party from smoking around them, saying that Michaels accidentally burned one with a cigarette.
Also, according to Etheridge's filing, Michaels had claimed the singer had "no maternal instinct" and had allegedly written to Etheridge that "I did not give birth to these two children to give them away to your various staff members and girlfriends to raise." Michaels carried the twins, conceived via artificial insemination. Etheridge also has two children from a previous relationship with Julie Cypher.
Etheridge and Michaels announced their separation in 2010.