The district court in Alexandria, Virginia, rejected Khaled El-Masri's suit, saying that a trial would disclose state secrets that are crucial to US security, however said Mr El-Masri may be eligible for a "remedy" if his story is true.
Mr El-Masri, 42, attempted to bring a lawsuit against George Tenet, three alleged CIA-linked aviation companies and many unnamed CIA intelligence agents, alleging that he was forcibly seized in Skopje, Macedonia, on December 31, 2003.
He said he was held for several weeks in an unknown location, where he was beaten and sodomized with a foreign object, before being drugged and taken to a CIA prison in Kabul, Afghanistan, where he was tortured and interrogated.
He was never charged with any terrorist offences and maintains he was mistaken for another person sought by the US in its war against terrorism.
Mr El-Masri said he spent four months in Afghanistan before he was flown blindfolded in a private jet to Albania on May 28, 2004, where he was left on an abandoned road to make his own way home.
He maintains he was held for weeks even after Mr Tenet, along with other top US officials including now-Secretary of State Condoleezza Rice, learned of the error.
The court did not comment on the allegations made in its ruling in favour of government arguments that the case should not proceed as it involved clandestine activities and would be damaging to national security.
"There is no doubt that the states secrets privilege is validly asserted here," the ruling said.
"While dismissal of the complaint deprives E-Masri of an American judicial forum for vindicating his claims ... El-Masri's private interests must give way to the national interest in preserving state secrets."
But the court showed some sympathy to his claims, concluding that the US government should offer a "remedy" if his story has any truth.
"If El-Masri's allegations are true or essentially true, then all fair-minded people, including those who believe that state secrets must be protected (and) that renditions are a necessary step to take in this war, must also agree that El-Masri has suffered injuries as a result of our country's mistake and deserves a remedy," the judgement said.
The judge said that remedy should come from the US government's executive or legislative branch, and not the courts.
The El-Masri case was the first legal challenge in the US confronting the controversial clandestine CIA renditions program, which involves seizing terrorism suspects and transferring them to secret prisons for interrogation.
US and foreign human rights groups have said the program involves severe torture and denial of basic rights.
The case attracted the attention of German Chancellor Angela Merkel, who raised the issue with Ms Rice.
The Secretary of State has admitted the US has used "extraordinary rendition" to move suspects across international borders, however Washington does not condone torture.