British American Tobacco, Japan Tobacco International, Philip Morris and Imperial Tobacco took their fight against the drab green boxes - designed to deter smokers - to the full bench of the High Court in April.
But in a win for the Federal Government, a majority ruling by the High Court today dismissed their case.
The court also ruled the tobacco companies pay the Government's costs.
Responding to the judgment, British American Tobacco Australia (BATA) said tobacco plain packaging would lead to a spike in illegal cigarette sales.
BATA spokesman Scott McIntyre said the company still believed the Government had no right to remove their intellectual property and was extremely disappointed by the court's ruling.
The case will be of enormous interest around the world as other jurisdictions such as the UK and New Zealand contemplate plain packaging laws.
The Australian Council on Smoking and Health said there would be global ramifications.
President Mike Daube, who chaired the Government's expert committee that recommended plain packaging, said global tobacco companies opposed plain packaging ferociously because they knew other countries would follow Australia's lead.
"We know from the companies' own internal documents that packaging is a crucial part of their marketing,'' Professor Daube said.
"They have now lost their last means of promoting smoking to adults and children.
"This truly is a life-saving victory for public health.''
Cancer Council's Kylie Lindorff said the packets had been the last bastion for tobacco company advertising.
"The industry have put all their resources into the packets,'' she said.
"They know this has an impact so this is a great outcome for public health.''
A joint release by Attorney General Nicola Roxon and Health Minister Tanya Plibersek called the win a "victory for all those families who have lost someone'' to cigarettes.
"No longer when a smoker pulls out a packet of cigarettes will that packet be a mobile billboard,'' they said.
"This decision is a relief for every parent who worries about their child picking up this deadly and addictive habit.''
The pair also acknowledged a "watershed moment for tobacco control around the world''.
"Australia's actions are being closely watched by governments around the world, including by Norway, Uruguay, UK, EU, NZ, France, South Africa and China,'' their statement said.
"The message to the rest of the world is big tobacco can be taken on and beaten.
"Without brave governments willing to take the fight up to big tobacco, they'd still have us believing that tobacco is neither harmful nor addictive."
British American Tobacco Australia said it respected the seven judges but said the decision would have "serious unintended consequences''.
"We've always said the Government had forced us down the legal path as we really didn't want to take action,'' BATA spokesman Scott McIntyre said.
"The Government couldn't see the serious consequences plain packaging would bring and now the problems will begin.
"The illegal cigarette black market will grow further when all packs look the same and are easier to copy."
He said the black market trade on smuggled cigarettes tripled last year and plain packaging would put pressure on the industry to reduce legal tobacco prices.
"Crime groups are pocketing hundreds of millions of dollars while avoiding tobacco excise to the tune of $1 billon,'' he said.
"At the end of the day the Government loses, taxpayers lose; the industry loses while crime bosses bank big profits.''
He said BATA would fully comply with plain packaging laws
Under laws passed last year, all cigarette and tobacco products will be sold in drab olive packs dominated by large graphic health warnings from December.
Brand names will be written in small, generic font.
Quit Victoria policy manager Kylie Lindorff said the judgment removed the tobacco industry's last remaining advertising stronghold.
"Big tobacco knows this crucial public health reform will work, which is why they've thrown a lot of money and resources into fighting it,'' Ms Lindorff said in a statement.
"This world-first reform means the next generation of Australians will never be exposed to or deceived by tobacco advertising.''
Cancer Council Victoria CEO Todd Harper said the landmark ruling would give confidence to other governments considering plain packaging, including the United Kingdom and New Zealand.
Under the section of the constitution made famous when it allowed Darryl Kerrigan to keep his family home in the Australian film The Castle, the cigarette companies had argued the Government was effectively taking their property without compensation by stopping them from using their trademarks.
But the majority of the justices disagreed.
The tobacco companies had also argued that the Government was taking their property for anti-smoking "advertising'' and should pay for the privilege.
Commonwealth Solicitor-General Stephen Gageler had argued the Government was merely regulating, as it had done in relation to tobacco companies since the 1970s.
It was wrong to suggest health warnings were a "little billboard for Government advertising'' and should be paid for, he said at the time.
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