The incident happened last year when Kirsty Powell and her husband were pulled over by police for driving a "low rider" car, according to the lawsuit.
Powell was arrested after police found a warrant under her name for a shoplifting incident, the CNN reported.
Powell's husband requested a female officer handle the arrest, but the arresting officers denied the request and told Powell that she had to remove her hijab. Powell spent the night in prison without her headscarf. It was returned when her husband posted her bond, the report said.
Powell was "forced to appear in a publicly available booking photo without her religious headwear," the lawsuit said.
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As a result of the foregoing deprivations of the free exercise of her religion, Kirsty Powell suffered severe discomfort, humiliation, and emotional distress," it said.
"She cried throughout the ordeal and experienced humiliation when both her religious beliefs and personal integrity were violated," the lawsuit said.
The city of Long Beach, California, will pay USD 85,000 to settle the lawsuit filed by Powell.
The Council on American-Islamic Relations announced the settlement and praised Powell.
"I want my Muslim sisters to always feel comfortable and safe wearing a hijab and to stand up for what's right," she said.