Under the settlement, the software maker will also give IBM a $75m credit for its computer programs.
Microsoft said the settlement resolves discriminatory pricing and overcharging allegations made by IBM.
The action dates back to a 1990s US federal case which found Microsoft had been acting as a monopoly by forcing computer firms to take its software.
The $775m payout is the latest in a long line of such payments following the action brought by the US Department of Justice - last year Microsoft agreed to pay $2bn to Sun Microsystems.
In 2004, the European Commission also fined the software group $597m for similar monopoly allegations, Microsoft was also forced to make a version of its Windows XP software that does not contain Windows media player - known as Windows XP Home Edition N.
"With these antitrust issues behind us, both Microsoft and IBM can move ahead, at times cooperatively and at times competitively, to bring the best products and services to customers," said Brad Smith, Microsoft's general counsel and senior vice president.
"This is a significant step toward our efforts to resolve these issues with other companies," he added.
One major anti-trust action brought by RealNetworks against the software giant remains, as well as several other smaller cases.
The case does also not resolve another outstanding claim launched by IBM.
The computer group alleges that Microsoft's software dominance damaged its server hardware and software business.
However, IBM has said it will not launch any compensation claims in the case for two years - it will also limit such claims to damages suffered after June 2002.