The State Council demanded an end to the transfer of the ship to India after complaints from environmentalists.
Environmental groups, including Greenpeace, the asbestos would be a health hazard to any workers involved in dismantling the ship.
The French Defence Ministry says 45 tonnes of asbestos remain, but environmentalists believe the true figure is more than 500.
The ship, known as the Clemenceau, has been in on tow in the Arabian Sea after India refused entry to its waters.
India demanded more information before it would allow the Clemenceau to enter its waters.
The order to return home ends month of wrangling which have deeply embarrassed the French government.
It marks a major victory for environmentalists.
Greenpeace said the decision was a warning to rich governments who sought to dump toxic waste on poor countries.
But ship breaking yards in regions such as India’s western Gujarat state are badly in need of work.
The company that was set to dismantle the Clemenceau said the French decision was a "big blow."
It predicted that the knock-on effect could cost thousands of jobs for the Indian shipbreaking industry.
Most sea-going ships end their service at ship yards in India, Bangladesh, China and Pakistan.
Activists say they are cut up by unprotected workers who risk exposure to health and environmental hazards.
Accused of exporting its pollution to the developing world, the French government has been sorely embarrassed by the debacle.
It threatened to overshadow Chirac's state visit to India which begins on Sunday.
Paris had also been under mounting pressure at home to bring back the warship.
The Socialist opposition denouncing the affair as a "fiasco" and some media accused the government of incompetence.
The ship will now travel via the Cape of Good Hope, the southern tip of the African continent, to the military port of Brest in northwestern France.
The journey is set to take three months.