The Premier League and the Football Association launched a joint investigation into the issue.
Ken Bates accused his former club of breaking youth development rules to sign teenagers Tom Taiwo and Michael Woods.
He also claimed Chelsea had tried to persuade a another youngster, Danny Rose, to sign.
Chelsea will examine their procedure for recruiting youth players but are not thought to have admitted liability.
In a joint statement, the two governing bodies said they considered the matter closed
The statement read: "The Premier League and Football Association today confirmed that Chelsea FC and Leeds United FC have reached a mutual agreed settlement with regard to an alleged approach to three Leeds United FC Academy players in breach of Premier League and FA rules.
"Leeds United FC has withdrawn their complaint and the Premier League has been advised by both clubs that any claims and litigation arising out of any alleged improper approach have been settled.
"This resolution is subject to a confidentiality agreement and there will be no further statements.
"Additionally Chelsea FC have undertaken to conduct an internal review of policies and procedures in relation to the recruitment of players, take steps to rectify any shortcomings; take the appropriate action in relation to club personnel, including Premier League approved training, and develop their own code of conduct.
"The Premier League and Football Association accordingly consider the matter closed."