The decision was handed down in Melbourne at 2:15pm (AEST), during Question Time where parliamentarians in Canberra absorbed the news.
Prime Minister Malcolm Turnbull said the decision would mean all Australians would now get to have their say.
“And that is as it should be, we encourage every Australian to vote in this survey and have their say,” Mr Turnbull said.
But he did not take up an offer from Opposition Leader Bill Shorten to co-sign a letter urging Australians to vote 'Yes'.
"The Leader of the Opposition can make his case and I'll make mine," he said.
'Misinformation and lies'
Survey challenger and independent MP Andrew Wilkie said he was disappointed by the decision.
"Regardless of the legality, this is and always was bad government policy," he said in a statement.
"Now that the Court has said no, it’s the community’s chance to say yes."
Speaking after the decision, plantiff and Rainbow Families Victoria director Felicity Marlowe expressed her disappointment over the court’s ruling.
“But it has been a fantastic journey to be part of to take this postal plebiscite as far as we could to stop it in the highest court in the land,” she said.
“We’ve seen an absolute travesty of misinformation and lies and hate speech being plastered across not just our television screens but newspapers [and] flyers in neighbourhoods close to ours where our children can pick them up and read them.”
An emotional Shelley Argent, who was also fighting the same-sex marriage postal survey in court, called on the LGBTIQ community to stay strong.
“We have done our best. We had to try and make this work because we know that with the postal survey that it will get very nasty and probably on both sides and we don’t need that,” she said.
“But I also want the LGTIQ community to know that we are supporting you and we have done our best and that’s all that we can do.
“I just say please stand strong because we will win this, we have a very poor government that can’t govern itself, let alone the rest of the country. We will get through this and we will get rid of them if need be.
Rules for campaign material
Finance Minister Mathias Cormann said the government would now move to push draft laws to make campaigning rules similiar to that of an election.
That would involve ensuring campaign material had indentifers.
"We will explore to what extent it is sensible to essentially put all of the safeguards in place that would normally apply in the context of a federal election," he told reporters.
Senator Cormann also encouraged all those involved in campaigning for either the Yes or No cases to do so with "courtesy and respect", and encouraged all to have their say.
"And at the end of the process, the Australian parliament, I'm very confident, will respect the collective judgement of the Australian people."
Liberal senator Eric Abetz, an opponent of marriage equality, said the challenge brought by same-sex marriage advocates and Mr Wilkie, was "hypocrisy writ-large".
"Democracy is an infinite good and political elites should never seek to stand in the way of the people having their say," he said in a statement.
"This plebiscite will give all Australians, especially the forgotten people who are concerned about the consequences for free speech, freedom of religion and parental choice, to have their say."
Labor said the focus should now be on winning a 'Yes' vote.
"Not the outcome we hoped for, but one we have planned for," shadow attorney-general Mark Dreyfus said on Twitter.
“You will get your rights and you will get marriage equality one way or another and we will not give up.”
What happens now
The decision will mean the survey will now proceed as planned, with the Australian Bureau of Statistics to start mail out survey forms from September 12.
The final result will be announced by the Australian Statistician at 11.30am on November 15.
The challengers to the survey argued the government did not have the right to spend over $120 million on the survey without passing an Act through parliament, and that the ABS's remit does not cover conducting such polls, but statistics.
The government relied on pre-exisiting funds which could be drawn upon for "urgent" and "unforseen" matters - but critics say the government itself created the urgency with its own deadline for the vote.
Consitutional law expert George Williams said it may be some time before the High Court reveals the reasons behind its decision.
Additional reporting Louise Cheer