The court has ruled that LEAs which automatically allocate school places to children living in a catchment area were acting unlawfully because they did not allow parents outside the area sufficient choice.
The ruling resulted from a case brought by 10 Rotherham families who were unable to get a place for their children at a popular school in the borough because it was already full of pupils living inside the catchment area.
Rotherham's system - which is common to a number of authorities - means pupils are automatically given a place in their local school unless their parents express a preference for a different school. Any places left over are then allocated to children outside the catchment area.
Following victory in the High Court last month, seven of the 10 children have now started at Old Hall School - the other three had already accepted places elsewhere. But Rotherham Council appealed on a point of principle.
The Appeal Court confirmed that the system meant parents who expressed a preference for a school were missing out to parents who sat back and did nothing. That contravened Section 411 of the 1996 Education Act which enshrined the right of parents to express a preference.
The Lord Chief Justice, Lord Bingham, said that in the real world some schools would always be over-subscribed and some parents frustrated. But LEAs were obliged to give parents a chance to choose, and to give priority to those who expressed a preference over those who did not.
The ruling could cause chaos for Rotherham and other authorities - the admissions process for next September is already well under way. Kirklees, Doncaster, Nottingham and Sheffield operate similar systems. Rotherham is now writing to all parents saying they must state a preference whether they live in the school's catchment area or not. That is likely to create confusion among parents. Education chairman Terry Sharman said it could also lead to fewer parents getting the school they wanted, besides creating paperwork.
The ruling is a blow for the catchment areas system, which many campaigners argue is a fairer way of allocating places than parental preference. Despite the intentions of the 1996 Act, the Audit Commission last year dismissed parental choice as a myth.
Labour has pledged reform - consultation is under way as part of its White Paper Excellence in Schools and proposals could form part of the Bill due to be published in the next month. But any changes are unlikely to come into effect until 2000 at the earliest.