Sheen sued Capri Anderson amid claims she tried to force him to give her cash after his meltdown last October in a suite at the Plaza Hotel.
The actor had claimed that Anderson, whose real name is Christina Walsh, stole his $165,000 Patek Philippe watch then demanded he pay her $1m to stay silent on the incident.
Anderson claimed that Sheen choked her and threatened to kill her after a night out together turned ugly.
But no charges were ever filed against Sheen by authorities.
On Friday the former Two and a Half Men actor filed paperwork in court to drop the claim against Anderson, the New York Daily News reports.
'She's pleased this litigation is over. She has moved on with her life and other endeavours,' her lawyer, Keith Davidson, told the Daily News.