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Leyla Sahin had brought the case in 1998 after being excluded from class at Istanbul University.
But the judges ruled that the ban was justified to maintain order and avoid giving preference to any religion.
Although overwhelmingly Muslim, Turkey is a secular republic and the Islamic headscarf is banned in all universities and official buildings.
The BBC's Sarah Rainsford in Istanbul says the verdict will have a major impact as more than 1,000 other women from Turkey have filed similar applications.