Labor frontbencher Terri Butler has settled a defamation lawsuit with Queensland law student Calum Thwaites over what some described as her "racist smear" on national television.

Ms Butler was accused of traducing Mr Thwaites for repeating allegations he used the phrase "ITT niggers" in a Facebook post, after a race-hate case brought against him and two other students was thrown out of court.

Mr Thwaites, 25, a law student at the Queensland University of Technology, sued the Labor frontbencher for defamation, alleging he had been "greatly harmed and injured in his personal reputation" by her remarks, which were made on the ABC's prime-time Q&A program.

The QUT students were embroiled in a three-year case levelled against them under section 18c of the Racial Discrimination Act after they posted about being ejected from an Indigenous-only computer lab at the university.