Indonesia's Film Censorship Agency banned Robert Connolly's acclaimed film last December because of its "political content".
Based on the true story, the film depicts Indonesian soldiers murdering five Australia-based newsmen in the East Timorese border town in 1975, contradicting the official explanation they were killed in crossfire.
Indonesia's Independent Journalist Alliance (AJI) defied the ban, risking jail terms and heavy fines by staging a series of free public screenings across the country.
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It also formally challenged the ban in Indonesia's State Management Court, which deals with complaints against state institutions.
AJI argued the ban was unlawful because it happened without proper consultation and contravened freedom of speech and human rights.
"It is crucial that the material in Balibo is known and witnessed widely so it comes to everyone's attention that reporters performing their duties must be protected," AJI said in a submission to the court.
The court on Thursday said it would deliver its verdict on August 5.
The film's release in Australia last year came just weeks before federal police announced they would conduct a formal war crimes investigation into the killings.
The AFP probe follows a 2007 coronial inquest that concluded Indonesia deliberately killed the journalists to cover up their East Timor invasion.
