"We have signed a new five-year collective bargaining agreement," MLS commissioner Don Garber told a teleconference on Saturday.
Players had voted to strike if a deal was not reached by midnight on Tuesday but the regular season will now go ahead as planned.
"This is a great way for MLS to start its 15th season," said Garber, who had been locked in negotiations until late at night with the union and a federal mediator.
MLS differs from most football leagues in being a 'single entity' where the league, rather than the clubs, own the rights to the players.
"Rights were our central theme all along. I think the deal reaches our joint goal of increasing player rights and compensation while keeping a strong eye on the bottom line," said union executive director Bob Foose.
Garber, who said the game was still at a "nascent stage" in North America, added the 'single entity' structure was not changed by the agreement.
"That system will remain in place, it is not the system that is of importance to the league but how it enables us to manage our business," he said.
Garber said there would be no internal bidding between teams for players who were out of contract but that a new "re-entry draft" would allow out of contract players, beyond a certain age, to move to other clubs.
"We made progress, not maybe as much as we would have chosen, but that is collective bargaining," he said.
"Player compensation improved significantly and that is a very important thing," said Foose.
"Our players fight for what they believe in," said Donovan, who has just returned from a loan spell with English Premier League Everton.
"I think it has been a very productive few weeks, we are excited that we get to play soccer ... this is the start of many good things to come for our league."
