Jon Platt was fined by Isle of Wight council after he took his family on holiday to Florida without permission from his child's school.
He was originally fined £60. This was later doubled, because of his refusal to pay.
The dispute went before Isle of Wight Magistrates' Court in October when Mr Platt won the case. The local authority appealed against the decision at the High Court in London today.
But Lord Justice Lloyd Jones and Mrs Justice Thirlwall have dismissed the council's challenge, ruling that the magistrates had not "erred in law" when reaching their decision.
A source from the Department for Education (DfE) told TES: “We will look at the judgment in detail, but are clear that children's attendance at school is non-negotiable so we will now look to change the law.”
After the ruling, Mr Platt said outside court: "I am obviously hugely relieved. I know that there was an awful lot riding on this - not just for me but for hundreds of other parents."
The magistrates decided Mr Platt had no case to answer, because no evidence had been produced to prove that his daughter – who is now aged seven and can only be referred to as “M” for legal reasons – had failed to attend school regularly.
Today the two High Court judges ruled that the magistrates were entitled to take into account the wider picture of the child's attendance record outside of the dates she was absent during the holiday.
The case came as a survey revealed that families face paying more than double the price for a package holiday as soon as school holidays begin.
But Mr Platt said that the case was not about the cost, but rather the principle that he should not be criminalised for taking his daughter out of school during term-time, he said.
Mark Jackson, appearing for the local authority, had argued that parents "cannot simply take their children out of school to take them on holiday, or for any other unauthorised reason".
Rejecting the submission, Lord Justice Lloyd Jones said: "I do not consider it is open to an authority to criminalise every unauthorised holiday by the simple device of alleging that there has been no regular attendance in a period limited to the absence on holiday."
A DfE spokesperson said: “We are disappointed with the High Court judgment.
“The evidence is clear that every extra day of school missed can affect a pupil’s chance of gaining good GCSEs, which has a lasting effect on their life chances.
“We are confident our policy to reduce school absence is clear and correct.
“We will examine today’s judgement in detail but are clear that children’s attendance at school is non-negotiable so we will now look to change the legislation. We also plan to strengthen statutory guidance to schools and local authorities.”