Senior U.S. District Judge Charles Breyer said the parties have made substantial progress in reaching a deal for nearly half a million polluting Volkswagens in the U.S.
Breyer announced a tentative agreement last month that would give owners the option of having Volkswagen buy back or repair their vehicles.
The judge did not provide any additional details about the ongoing talks.
VW, the U.S. Department of Justice and attorneys for Volkswagen owners have until June 21 to file a final settlement with the court.
Many questions remain unanswered, including how much money owners can expect in a buyback and how much additional compensation beyond repairs and buybacks they'll receive.
Breyer has the authority to reject any final deal that the parties propose.
The tentative deal announced last month covers about 482,000 Volkswagens with 2-liter, four-cylinder diesel engines. It did not cover about 90,000 Volkswagen, Audi and Porsche diesel vehicles with 3-liter, six-cylinder engines.
Breyer said engineering studies and testing of those vehicles were ongoing. The tentative deal also does not cover potential fines and penalties.
Volkswagen said in a statement after the hearing that it was pleased it has continued to make progress in settlement talks, and it thanked U.S. customers for their continued patience.
9:52 a.m.: This article has been updated with Senior U.S. District Judge Charles Breyer's statement on the proposed settlement.