Two "independent directors" will also be appointed by Tesla, and the company will set up a new committee of independent directors and "put in place additional controls and procedures to oversee Musk's communications", the SEC said.
The agreement eases pressure on Tesla's embattled CEO, who faced potentially being barred from serving as an officer or board member of a publicly traded company as a result of the charges, which stemmed from a tweet by Musk about taking the company private.
Tesla and Mr Musk will pay $20 million each to financial regulators. Musk said August 7 in a company blog post that he was considering taking Tesla private at $420 per share, representing a 20% premium over the stock price following the company's second-quarter earnings release.
The SEC announced the deal on Saturday - two days after it sued Musk in federal court for misleading investors over his post on Twitter last month that he was considering taking Tesla into private ownership.
The agreement allows Musk to stay on as CEO of the company that has struggled to meet manufacturing deadlines and slow cash burn.
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He accepted the deal with the SEC "without admitting or denying the allegations of the complaint", according to a court document.
He arrived at the $420 a share figure by assuming a 20 percent premium on Tesla shares and rounding up one dollar because "he had recently learned about the number's significance in marijuana culture", and to impress his girlfriend, according to the SEC's complaint.
Musk, a co-founder of Tesla, is the company's largest stockholder, owning approximately 22 per cent of its outstanding shares.
He's made these assurances in large part due to progress Tesla has made in producing more Model 3 sedans - the first electric vehicle Tesla has tried to mass-manufacture. Munster pointed out that the terms of the settlement actually works in Tesla's favor, as the appointment of a new, capable Chairman of the Board could help Tesla reach sustainability, as well as become the wake-up call that Musk needs with regards to his behavior online.