The settlement means a custody trial will be avoided over the 5-year-old daughter and 3-year-old son of former "Survivor" producer Bruce Beresford-Redman, 38, and his wife Monica Beresford-Redman, who was killed in April in Cancun, City News Service said.
Mexican authorities issued an arrest warrant in May for Bruce Beresford-Redman, 38, and were attempting to extradite him. He returned to Los Angeles before the warrant was issued.
Beresford-Redman has denied killing his wife.
"I am incensed at the suggestion that I could have had anything to do with her death," he said in a statement released in May.
Two of the mother's sisters - Carla Van Bastelaar and Jeane Burgos - had sought custody of the children, but agreed to give it to David and Juanita Beresford-Redman, who have been serving as temporary guardians of Camila, 5, and Alex, 3.
"The settlement is in the best interests of the children and on behalf of my clients I'm thrilled that we were able to do something cooperatively," said Patricia Phillips, attorney for the aunts.
"I want what's best for the kids you all care so much about," said Judge Mitchell L. Beckloff, who signed the agreement after talking Tuesday to lawyers for both sides, who said they wanted to avoid trial.
Adrienne Hahn, attorney for the grandparents, said the agreement will allow the children to remain with their father, who lives with his parents and the kids in Rancho Palos Verdes.
"They should be home with their dad," Hahn said.
The aunts added a provision to the agreement saying Bruce Beresford-Redman had to wait a year before he can ask that his parental rights be restored.
The father said the agreement unfairly judged him because of the circumstances in Mexico.
"It strikes me as punitive," Bruce Beresford-Redman said according to City News Service. "It seems to me I'm being punished for something I can't control."
Beckloff replied: "I don't know what happened, I wasn't there. I have never prejudged you about what happened there."
Monica Beresford-Redman's body was found April 8 in a sewer at the Moon Palace Hotel resort in Cancun. Investigators have said her body showed signs of asphyxiation and evidence of a heavy blow to the right temple.
They said Beresford-Redman told them he last saw her after she left the resort to go shopping and never returned. Prosecutors say he reported her missing two days before her body was found.