(CNN) -- Conan O'Brien will vacate his "Tonight Show" seat to make room for former host Jay Leno, NBC confirmed Thursday.
"NBC and Conan O'Brien have reached a resolution of the issues surrounding O'Brien's contract to host 'The Tonight Show with Conan O'Brien,' " NBC said in a statement.
"Under terms of an agreement that was signed earlier today, NBC and O'Brien will settle their contractual obligations and the network will release O'Brien from his contract, freeing him to pursue other opportunities after September 1, 2010."
O'Brien will make his final appearance as host of "The Tonight Show" on Friday.
Leno will return as host of "The Tonight Show" on March 1, the network said in a separate statement.
"We're pleased that Jay is returning to host the franchise that he helmed brilliantly and successfully for many years," said Jeff Gaspin, chairman of NBC Universal Television Entertainment. "He is an enormous talent, a consummate professional and one of the hardest-working performers on television."
Leno -- who will keep many of his old "Tonight" features -- will take over for O'Brien in the 11:35 p.m. time slot, followed by Jimmy Fallon at 12:35 a.m.
Although the network had been strangely silent about the deals happening behind the scenes, off-the-record sources have popped up in a number of press reports, leaking details about the difficult negotiations between O'Brien and NBC.
When the news first broke that the Peacock Network was going to nix its failed prime-time talk show experiment and move "The Jay Leno Show" to 11:35 p.m., it was clear that O'Brien had a handful of options: he could stay with the network as the host of "The Tonight Show" at 12:05 a.m.; head over to Fox, the only network to openly express interest in O'Brien; or wash his hands of NBC altogether.
O'Brien released a statement last week telling the "people of Earth" that moving the show to 12:05 a.m. would be against his principles, and that he wouldn't host the show if it had to air at that hour.
NBC, on the other hand, didn't appear to budge on its earlier statement that Leno would kick off the late-night roundup at 11:35. At that point, it was evident to industry insiders that it was only a matter of time before O'Brien and NBC reached an agreement that left O'Brien as the odd-host out.
This eventual outcome was heightened when Dick Ebersol, chairman of NBC Universal Sports, told the New York Times that it was "chicken-hearted and gutless" for O'Brien to continuously place the blame at Leno's feet in his nightly monologues, when he couldn't beat the guy in ratings.
However, since O'Brien has fallen victim to the domino effect of NBC's prime-time problem, his ratings have been on an upswing, while Leno's have stayed marginally the same.
But perhaps that rise in ratings -- which can easily be attributed to the very public fallout -- is a case of too little, too late.
Last week, NBC executives started sitting down with O'Brien's team to hash out the contract logistics and determine a settlement, rumored to be in the ballpark of $40 million.