Intel said it has agreed to abide by a set of "business practice provisions." In return, AMD is dropping suits in the U.S. and Japan, and withdrawing complaints to antitrust regulators worldwide.
AMD has been complaining to regulators for five years that Intel has broken antitrust laws to limit AMD's market share.
In May, the European Union fined Intel a record $1.45 billion, and last year, Korea's Fair Trade Commission fined Intel $18.6 million. Intel is appealing both rulings.
In 2005, Japan's Fair Trade Commission found that Intel violated antitrust rules there. Intel accepted that ruling without admitting wrongdoing.
The U.S. Federal Trade Commission also is investigating.
Intel has previously defended its sales practices - which include rebates to big Intel customers - as legitimate and good for customers because it can lead to lower prices.
Intel said that the $1.25 billion settlement means its spending in the current quarter will now be $4.2 billion rather than the $2.9 billion it had previously forecast. It also expects its tax rate to be 20 percent rather than 26 percent. All other expectations are unchanged, Intel said.
Intel, based in Santa Clara, California, owns about 80 percent of the worldwide microprocessor market, while AMD in nearby Sunnyvale has most of the rest.