The men experienced vivid hallucinogenic trips when given the drugs. One recalled seeing distorted "Salvador Dali-style faces and cracks in people's faces". MI6 is also paying the cost of the men's lawsuit, which alleged assault.
Don Webb, a former airman, said yesterday: "I feel vindicated; this has been a classic cover-up for years. They took a liberty."
The LSD experiments were conducted in 1953 and 1954 by scientists working for MI6 who were trying to discover a "truth drug" to compel prisoners to confess.
MI6, then led by Sir John Sinclair, was worried that the Russians had a secret drug to brainwash cold war enemies. The service had seen captured American servicemen confessing to "crimes" during the Korean war and calling for a US surrender. A Hungarian dissident had admitted to crimes he did not commit.
MI6's counterparts at the CIA also did LSD experiments on men without their knowledge to try to control their minds. Both agencies finally concluded that LSD could not be used to manipulate people.
One scientist involved in the trials wrote that the experiments were "stopped ... when it was reported that in a few people it might produce suicidal tendencies". The trials were described as "tentative and inadequately controlled" in one official document.
The amount of compensation paid to three servicemen in the lawsuit is not being disclosed by MI6 or the men; Alan Care, the men's lawyer, called it modest.
One man did not wish to be named. But Mr Webb and a former Royal Navy radio operator, Eric Gow, were 19 when they volunteered to take part in what they believed was research to find a cure for colds. They were sent to the chemical warfare research establishment at Porton Down, Wiltshire. Both said they were not told beforehand that they were going to be tested with LSD. At the time, the effects of LSD, only discovered in 1943, were unknown to the general public.
Mr Webb said scientists gave him LSD at least twice in a week. He remembers a nightmarish experience when he hallucinated for a long time. He saw "walls melting, cracks appearing in people's faces ... eyes would run down cheeks, Salvador Dali-type faces ... a flower would turn into a slug".
He said he had first made inquiries about the experiments in the 1960s but was "blanked by the government, which quoted the Official Secrets Act". He said he experienced flashbacks for 10 years after the experiments.
Mr Gow said the scientists acted in an "irresponsible and sloppy" way and had not properly monitored him. "They treated us just like guinea pigs. They did not know what was going to happen."
One morning, Mr Gow began to trip on LSD, seeing a radiator moving "like a squeezebox". He was still hallucinating when later he went dancing with his wellingtons on. Yesterday, he said: "I am glad they have finally admitted it."
A Foreign Office spokeswoman, speaking for MI6, said last night: "Settlement offers were made to the government on behalf of the three claimants which, on legal advice ... the government thought it appropriate to accept."