Debbie Ellis lifted Luke Casey by the armpits when he refused to come in - and was accused of "physical and emotional abuse".
But yesterday, she won her battle for compensation after arguing that she had acted in the boy's best interests after a man was spotted performing a sex act outside the school just weeks earlier.
Governors at Hafod-y-Wern primary in Wrexham, North Wales, had investigated and the 51- year-old head was fired - despite her unblemished 20-year record.
Her lawyer called the move "totally unfair and over the top" and took them to an employment tribunal claiming unfair dismissal.
But minutes before it was due to start yesterday the teacher and Wrexham Council said they had come to a confidential agreement.
Mum-of-two Debbie, who has worked as an office cleaner since her sacking in February last year, said: "It's a massive weight off my shoulders.
"What happened has had a huge impact on my life and my family's life. It affected my health.
"I'm pleased it's done and dusted. I'll take a breather and put life into perspective.
"I don't want to go back to teaching right now - I loved my job and was shattered when this happened."
A local authority spokesman said it "intends to respect the confidential agreement".