"France is proud to have reached this agreement with Google, the first of its kind in the world," the French president's office said on Twitter after Francois Hollande and Google chief Eric Schmidt signed the accord.
Google will set up a 60 million euro ($82 mn) fund to help French media develop online projects, the French president's office said.
The president's office said the fund "will help the news press transition to the digital world."
Schmidt said on his Google blog "A healthy news industry is important for Google and our partners, and it is essential to a free society."
The deal follows two months of mediation with French news websites, who were unhappy they were getting none of the advertising revenue Google earned from sending search clients to their news content.The news websites had wanted Google to share revenue earned from linking to their content, but the California-based search engine had said the practice would "threaten (Google's) very existence".
While French news websites won't tap into Google's advertising revenue stream, the second part of the agreement will see the US company help them generate their own.
Schmidt said "Google will deepen our partnership with French publishers to help increase their online revenues using our advertising technology."
If no settlement had been reached the French government had threatened to introduce legislation, while Google warned it could retaliate by no longer indexing content from French news websites.