Payments to the security company have been reduced by £48m to cover additional military and police costs, and by a further £37m for project management failures.
Games Organisers said the settlement ensured that taxpayers' interests were protected, while "at the same time recognising that G4S ultimately provided over 80% of the man-guarding hours it had contracted to supply".
Neil Wood, LOCOGs Chief Financial Officer said:
"We are pleased to have reached an agreement that protects taxpayers interests by reducing the payment due to G4S by £85m. The savings arising from this settlement brings the total savings to the public purse from the LOCOG venue security budget to £102m compared to the position in December 2011.
"We would like to thank the Military and the Police for their exceptional and outstanding support during the Games in providing a robust, effective, professional and friendly security operation.
"We would also like to thank the G4S guards who worked alongside the Military, the Police and the Volunteers to deliver a safe and secure Games in spite of the high profile challenges faced by the G4S Group.
"The Home Office has been consulted on the settlement and fully supports the position reached between LOCOG and G4S."
A committee of MPs has said the problems with recruiting security staff for the Olympics should have been foreseen.
The boss of the government's Olympics' security contractor G4S has faced a dressing down from MPs for his firm's poor performance.
The head of G4S is under pressure to quit his £830,000-a-year job as he prepares to face questions from MPs