The confidential settlement was announced at Hong Kong's High Court on the opening day of what was due to have been a 12-day hearing to assess whether the victim was entitled to damages.
One of the terms of the settlement, said by parties close to the case to be "substantial," is that neither the church nor the victim reveals the amount, the court was told.
Former priest Michael Lau, now aged 46, was jailed for four and a half years after being convicted of indecent assault, gross indecency and attempted buggery on the boy in a criminal trial in 2003.
The victim suffered a mental breakdown after being abused in the priest's quarters and at a Catholic school in Hong Kong in 1991 and 1992 and was subsequently diagnosed with schizophrenia and post-traumatic stress disorder.
In his case for damages against the church, the victim claimed the attacks contributed to his conditions and that the church breached its duty of care by not protecting him from Lau when he first reported the abuse.
The victim, who cannot be named for legal reasons, also claimed the church was negligent in failing to notify police after the abuse claims were first made.
At Monday's hearing, Deputy High Court judge Justice Saunders congratulated both parties on reaching a settlement but said it was unfortunate the process had taken so long.
The judge said he blamed the system rather than either party for the protracted negotiations and called on the Law Society to establish a more effective mediation system.
Lau was arrested in 2002 at a time when cover-ups of abuse by Catholic priests worldwide began to emerge and the church admitted dealing with a number of abuse cases without involving police.
There are about 250,000 Catholics in Hong Kong, including the territory's Beijing-appointed chief executive Donald Tsang.The church runs more than 300 schools and nurseries and has about 300 priests.
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