The 34-year-old woman claimed the actor exposed himself and carried out a sex act as she gave him the massage at the Old Course Hotel in Fife, Scotland, in October 2004, said papers filed with the tribunal.
Her allegations were not taken seriously by hotel staff, papers said.
Tribunal chairman Nicol Hosie said the woman, who cannot be named for legal reasons, had agreed to settle her claim of unfair dismissal and sexual discrimination out of court.
The tribunal, sitting in Dundee, Scotland, on Tuesday, did not consider whether her allegations were true.
"This was never about Kevin Costner. It is a dispute between a hotel and an ex-employee," the 51-year-old actor-director's spokesman, Paul Bloch, told reporters.
Hosie lifted a restriction that had been imposed to prevent Costner's identity from being revealed, saying there was no reason for it to be withheld from reporting.
An earlier hearing had been told Costner and his wife were staying at the hotel at the time of the alleged incident.
"It is the company's position not to comment on matters of litigation," said an Old Course Hotel spokesman, speaking on condition of anonymity, in a written statement. "The parties have settled this matter. The terms are confidential and undisclosed."