The Seoul High Court ordered Dow Chemical in Midland, Michigan, and Monsanto Company in St. Louis, Missouri, to pay the compensation to about 6,800 people.
The herbicide was widely used to destroy jungle cover used by communist troops during the war, but South Koreans, Vietnamese and many U.S. veterans later blamed their exposure to the chemical for a variety of illnesses and reproductive disorders, including miscarriages, birth defects, cancers and nervous disorders.
Thursday's decision marked the first time a South Korean court has ruled in favor of those seeking compensation against the makers of Agent Orange.
"It is acknowledged ... the defendants failed to ensure safety as the defoliants manufactured by the defendants had higher levels of dioxins than standard," the court said in its ruling.
There was no immediate comment from the U.S. firms.
South Koreans made up the largest foreign contingent of U.S. allies fighting in Vietnam, contributing some 320,000 troops. South Korea lost 5,077 soldiers and suffered 10,962 wounded.
Official U.S. records show that the U.S. military sprayed 19 million gallons of defoliants over southern Vietnam between 1962 and 1971. About 55 percent of that was Agent Orange.
About 20,000 South Koreans filed two separate lawsuits in 1999 against the U.S. firms, seeking more than 5 trillion won in damages. In 2002, they lost a decision in a lower court that said the "causal relationship between the plaintiffs' illnesses and Agent Orange has not been proven." The plaintiffs appealed.
On Thursday, the appeals court issued a combined ruling in the two cases, awarding damages ranging from $6,200 to $47,500; to about 6,800 veterans and bereaved family members of those dead.