An independent disciplinary officer found this month that Watson had violated league policy in "various ways". It decided he should be suspended six games but did not hand him a fine.
The NFL appealed days later. A source close to the situation told Reuters the NFL had initially sought a one-year suspension.
In addition to the expanded suspension, Watson must undergo mandatory counseling as part of the settlement between the league and the NFL Players Association.
"Deshaun has committed to doing the hard work on himself that is necessary for his return to the NFL," Commissioner Roger Goodell said in a statement.
"This settlement requires compliance with a professional evaluation and treatment plan, a significant fine, and a more substantial suspension."
Watson's fine and additional contributions provided by the team and the NFL will go towards a fund aimed at preventing sexual misconduct and assault in the United States.
In a statement posted to the Browns Twitter page, Watson said he was "grateful" the disciplinary process was over.
"I apologize once again for any pain this situation has caused," he said. "I take accountability for the decisions I made."
Team owners Dee and Jimmy Haslam said in a statement: "We will continue to support (Watson) as he focuses on earning the trust of our community."
