Under the settlement, the two companies will share the name, which has been used by Cisco for seven years on its line of internet-linked telephones, on products around the world.
Apple announced in early January it was to move into the mobile phone market with its touchscreen iPhone, leading to the suit from Cisco.
The manufacturer of the iPod, which had branded the action "silly", yesterday made the concession that it would explore opportunities to work with Cisco "in the areas of security and consumer and enterprise communications".
The deal comes weeks after Apple and Apple Corp, The Beatles' record label, settled their long-running legal battle over the use of the Apple name.
The iPhone was officially unveiled at the annual Macworld conference in San Francisco. The widescreen device has full iTunes integration and can also sync data with a desktop, including music and videos from iTunes, contacts, calendars, photos, notes, bookmarks and email accounts.