Although the car manufacturer has not disclosed how much it will be shelling out, the proposed settlement includes cash payments.
Volkswagen will now be working with the dealers' counsel to finalise the details of the deal, including how to split the compensation among those affected, and a final agreement is expected to be reached by the end of September.
"We believe this agreement in principle with Volkswagen dealers is a very important step in our commitment to making things right for all our stakeholders in the United States," said Hinrich Woebcken, chief executive of the North American region for Volkswagen. "Our dealers are our partners and we value their ongoing loyalty and passion for the Volkswagen brand.
"This agreement, when finalised, will strengthen the foundation for our future together and further emphasise our commitment both to our partners and the US market."
Steve Berman, managing partner of the dealers' counsel, Hagens Berman, added: "Now that there is a path forward for dealers, they can continue to work proactively to take great care of their customers, who are also VW customers."
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In June, Volkswagen reached a settlement in the US to pay roughly $14.7bn (£11.2bn) to compensate vehicle owners and fund government programmes to boost emissions technology and mitigate air pollution.
Last year, the car manufacturer confessed to fitting vehicles with devices designed to cheat emissions tests, sparking a slew of investigations and legal actions in multiple countries.
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