The department, which sued in August to stop the merger, said that as part of the deal, it will require the airlines to give up landing slots and passenger gates at airports where the combined carrier would dominate its competition.
The two airlines said they will abide by the Justice Department's demands to allow the merger.
“This is an important day for our customers, our people and our financial stakeholders," said Tom Horton, chairman, president and chief executive of AMR Corp., the parent company of American Airlines. "This agreement allows us to take the final steps in creating the new American Airlines."
Under the terms of the settlement, the airlines will give up 52 slot pairs at Washington's Ronald Reagan National Airport and 17 slot pairs at New York's LaGuardia Airport, as well as certain gates and related facilities to support service at those airports.
The airlines also agreed to continue to maintain hubs in several key cities, including Los Angeles, Chicago, Miami and Charlotte, N.C.
The airlines also agreed to divest two gates and related facilities at Los Angeles International Airport, Boston's Logan International Airport, Chicago's O’Hare International Airport, Dallas' Love Field and Miami International Airport.
The Justice Department, which had argued that the merger would reduce competition and lead to higher fares, said it hopes that low-cost airlines will take over the slots and gates given up by American and US Airways, as a means to increase competition.
"By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country,” Atty. Gen. Eric H. Holder Jr. said in a statement.
Under the settlement terms, the Justice Department must oversee the so-called divestiture of the gates and slots. The judge overseeing the bankruptcy proceedings of AMR Corp. has already approved the merger, pending approval by the Justice Department.