Pfizer has always maintained that the tests had been approved
Nigeria's Kano State and US drugs firm Pfizer have agreed to settle a multi-million dollar lawsuit out of court, lawyers for both sides say.
Pfizer has been accused of killing 11 children and injuring 181 others when an antibiotic was tested on them during a meningitis epidemic in 1996.
The company denies the claims, saying they were victims of the outbreak.
The Kano State lawyer told the BBC compensation would be paid to victims, but figures could not yet be disclosed.
Barrister Aliyu Umar said money would also be given to a local hospital.
He made the comments after a court agreed to postpone the case until 25 May, with both sides saying they have come to a settlement but have yet to work out the details.
"I want to report that broad and principal fundamental agreement has been reached between Kano State government and Pfizer," the drug firm's lawyer Anthony Idigbe said.
"They promised not to disclose the amounts involved until they sit down and negotiate how to implement the agreement," Mr Umar told the BBC's Hausa service
"This is all what remains to do so that the victims will get some compensation," he said.
According to Reuters news agency, Nigeria's federal government sued for an additional $6.5bn in 2007 but sources close to the negotiations have said it is expected to withdraw its case if Kano reaches a settlement.
Judge Shehu Atiku said the next hearing in the Kano case would be held on 25 May but said there was "a strong indication that the case is about to come to an end", Reuters reports.
In January, Nigerian families were given leave to sue Pfizer in the US over the affair.
The families say that Pfizer tested out an oral antibiotic called Trovan on some 200 ill children in hospital in Kano, without first getting the consent of their parents.
Pfizer has always maintained that the tests were carried out with the approval of the Nigerian government and that the children's parents were fully informed.
The 1996 meningitis epidemic killed 12,000 children in Nigeria in six months.