The Federal Trade Commission (FTC) accused Epic Games of violating children's privacy.
The company was also accused of using manipulative techniques to trick players into making unintentional purchases.
Epic Games agreed to pay $520 million in fines and refunds to settle the accusations.
The settlement is the largest ever for breaking an FTC rule.
Epic Games released Fortnite five years ago, and it quickly became popular among millions of teenagers and children.
Some children spent hundreds of dollars on their parent's credit cards to buy in-game items.
The FTC accused Epic Games of illegally collecting children's personal information.
The company was also accused of harming young players by matching them with strangers and enabling live communications.
Epic Games instituted multiple children's privacy and purchasing safeguards, but the FTC said they were not enough.
Epic Games agreed to pay $275 million to settle accusations of violating the Children's Online Privacy Protection Act.
The company also agreed to pay a $275 million fine for collecting personal information on players under 13 without consent.