Sheahan has been embattled since February, when the police union announced a vote of no confidence in his leadership.
The Fraternal Order of Police, which represents Oak Brook police officers, says the department suffers from a "glaring morale problem" because of Sheahan's "arbitrary and selective" discipline.
Village Manager David Niemeyer refused to give details of the separation agreement. He says Sheahan is reviewing the pact with his attorney.
Oak Brook is located west of Chicago.
