The judge has rejected the deal the 22-year-old Adelaide woman struck with Colombian prosecutors in July.
Under the deal, her jail term would have been reduced from possibly more than 20 years to just six in return for naming people behind a drug-smuggling ring.
The decision by a judge in the Colombian capital of Bogota comes after Cassandra Sainsbury claimed she agreed to take cocaine in her luggage when her family was threatened.
Ms Sainsbury now faces between 20 and 30 years in jail if found guilty.
She made the claim about threats to her family when she appeared before the judge in July.
In response, Judge Sergio Leon has now suspended the hearing, saying her explanation for her actions has raised questions about whether the plea deal should be allowed.
"The Second Criminal Judges Office of the Specialised Circuit of Bogota DC, administering justice in the name of the republic, decides not to approve the agreement held between the Prosecutor's Office number 40 and the accused, Cassandra Lee Sainsbury."
Ms Sainsbury, supported in court by her mother and fiance, told the court she initially thought she was carrying documents for someone in exchange for $10,000.
But she said she was later forced to carry drugs after being threatened at gunpoint.
Her lawyer, Orlando Heran, has told the Seven Network how the next steps in the case will work now.
"For Cassandra, it means this is a good stage for the trial, because the judge has considered that the prosecutor doesn't have good proof against Cassandra in order to do her responsibility. So, in Colombia, there are many rights, constitutional rights. One right is the presumption of innocence. But for the prosecutor, it's necessary to prove the responsibility or there is doubt."
Judge Leon says there are now two paths the case could take.
The prosecution and the defence could resume negotiations on a deal or the trial will proceed and, in his words, it will be the work of the prosecution to improve its case.
Foreign Minister Julie Bishop says her department is monitoring the case.
But she says it sends a strong message to all Australians travelling overseas that they must abide by the laws of the country they are visiting.
"I understand that this situation is evolving. She has legal representation. The Australian government has offered, and has provided, consular support, as we would to any Australian in these circumstances, and we continue to offer that support. Australian consular officials are present at the court hearing."
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