The guidelines, published this week, also make it clear that pupils can be sent home to change their clothes, but they warn schools against adopting overly expensive uniforms.
The Department for Education and Skills document has been updated in the light of a case last month in which a 12-year-old girl lost a legal battle to wear the full-face niqab in class in her Buckinghamshire school.
However, newspaper reports suggesting that veils are now banned in schools are incorrect, with decisions still the responsibility of individual governing bodies.
The guidance states that schools should consult widely with parents, governors and the local community on uniform policy relating to religious dress and should try to tolerate a wide range of religious and cultural items of clothing.
But they could decide that pupils should not cover their faces because "the teacher may not be able to judge their engagement" or because of the need to "maintain good order and identify intruders easily".
Tahir Alam, education spokesman for the Muslim Council of Britain, said:
"It doesn't alter the position very much because the matter still remains with the governing bodies and communities to resolve."
The guidance, out for consultation, also warns schools against discriminating indirectly - for example by banning "cornrow" hairstyles, which are "more likely to be adopted by specific racial groups".
Schools should also stop pupils wearing styles of clothing associated with gangs.
* www.dfes.gov.ukconsultationscon Details.cfm?consultationId=1468