The court settlement was reached Monday and is intended to head off a trial scheduled for next year.
The four plaintiffs filed negligence and civil rights claims against the Department of Social and Health Services and one social worker.
The lawsuit was originally filed in Stevens County Superior Court, and moved to federal court in Spokane.
The plaintiffs allege they were placed in an abusive foster home with Sylvia and Michael Wenger, who later adopted the children.
The plaintiffs, who are now adults, say they were sexually assaulted, locked in closets and forced to eat their own vomit.
Richard Felsch is now 23-years old and spends his days working on cars with his biological father. He said the time he spent with the Wengers robbed him of something he can never get back: his childhood and knowing what "normal" is.
"There were times where closets were cleaned out for us to live in for a couple of months at a time - these are forms of punishment," Felsch said.
The state removed Felsch and his twin sisters from their biological mother's home in 1996 and placed the with the Wengers in eastern Washington. In court documents, attorney Allen Ressler said the state never should have given the Wengers a foster parent license.
A psychologist found that Sylvia Wenger was sexually abused as a child and had a history of theft and manipulation, according to court documents.
Felsch said he and his sisters repeatedly told social workers they were being abused.
"You get laughed at, you get outright laughed at as a child who is crying wolf, exaggerating, making a mountain out of a molehill," he said.
After five years, the Felsch children and a fourth foster child were removed from the home after the twins ran away and reported being raped by Michael Wenger. He was convicted of child molestation and sentenced to 7 years in prison.
Felsch said he wants the state to wake up and start listening to foster kids.
"I feel 150 percent that the state simply didn't do enough. When they do know something's wrong, they don't do anything about it," he said.
In a statement released Monday, the state's Children's Administration said, "It is truly unfortunate that these children suffered at the hands of adults they had trusted." The statement went on to say, "although nothing can change what happened in that home, the agreement fairly compensates these individuals.
State officials also say they used this and other cases to change the way foster homes are licensed, including a more detailed evaluation of families looking to become licensed.