Sarah Forsyth, 30, who was sacked a month after making the recording, sued the pound;23,000-a-year school claiming she had been bullied and undermined.
A tribunal this week ruled in her favour but criticised the art teacher for making the recording. They also rejected a separate claim of sex discrimination.
Miss Forsyth could now win substantial damages, although the school has vowed to fight any compensation claim.
The teacher, who has since quit the profession, accused her head of department Ian Burke of bullying her and improperly assisting pupils during exams.
During the tribunal in May, Miss Forsyth said she had written most of the text of the Prince's AS-level art coursework journal, something she said was "unethical and probably constituted cheating".
The Prince denied any suggestion that he cheated and an investigation by Edexcel, the exam board, found no evidence of any improper behaviour.
She also claimed that Mr Burke had "touched up" Aboriginal-inspired artwork which was displayed to the media.
In a last-ditch bid to save her job in the summer of 2003, Miss Forsyth secretly tape-recorded the Prince talking about the coursework journal the previous year.
This week the tribunal ruled that Miss Forsyth's dismissal had been unreasonable, but it said there was no evidence Harry had cheated. "To tape-record a pupil without that pupil's consent is clearly an abuse of the position of trust in the pupil-teacher relationship," it added.
Head Anthony Little was criticised for failing to look at her situation independently, using his predecessor's decision of March 2002, in which Miss Forsyth was told that her contract would be extended for only one year, as his starting point.
The panel said: "He accepted in his evidence that it was important to be fair and objective in assessing the claimant, but clearly put the onus on the claimant to show why her contract should not be renewed, rather than on an objective assessment by Eton of her capability and whether to extend or determine her contract of employment on expiration of the fixed-term contract."
The school was also criticised for failing to follow proper procedure over the dismissal. An Eton spokesman said after the hearing: "The tribunal quite rightly saw through Miss Forsyth's publicity-seeking allegations regarding Prince Harry. These were dismissed for what they always have been - unfounded."
He added: "Miss Forsyth should receive no compensation as she would in any event have been summarily dismissed for gross misconduct for secretly tape-recording a conversation with a pupil."
Anthony Sakrouge, Miss Forsyth's solicitor, said his client was pleased with the ruling, but said they would not comment further until the compensation hearing later this month. He said that the decision was overwhelmingly in Miss Forsyth's favour and was confident she would be granted an appropriate award.