A ban on manufacturing and importing "harmful" single-use plastics came into effect last December after the federal government formally drew up a order that added them to a list of toxic items.
But the Federal Court in Ottawa overturned that decision, calling the listing "unreasonable and unconstitutional". The case was brought by plastics manufacturers such as Dow Inc as well as Imperial Oil.
The office of Environment Minister Stephen Guilbeault said it was considering an appeal.
"We strongly believe in taking action to tackle this crisis and keep millions of garbage bags worth of trash off our beaches, out of our waters, and away from nature," spokeswoman Kaitlin Power said in a statement.
Lindsay Beck, lawyer for the Ecojustice green movement, said the court ruling had undermined the ban on single-use plastics but had not specifically blocked it.
(Reporting by David Ljunggren;editing by Deepa Babington)