The judicial review was sought by the New Zealand Motor Caravan Association (NZMCA).
The NZMCA said the council had considered irrelevant matters regarding the effects on neighbouring areas, and the High Court ruled that these were indeed irrelevant considerations.
Queenstown Lakes District Council chief executive Mike Theelen said the decision was disappointing for the council and its communities.
Theelen said Queenstown was a tourist destination and warmly welcomed responsible campers to the district, but he said over the years they have had to respond to over-use by a large number of freedom campers, and anti-social behaviour which had affected the community and environment.
"We have consulted extensively with our community on this contentious topic and received strong feedback that the inconsiderate actions of so many freedom campers created a very negative experience for locals and other visitors alike.
"While we acknowledge this was not true of all freedom campers, the impact of some on the community has been serious."
He said the council would now take time to understand the judgement and determine its next steps for managing camping over the summer.
Theelen said the council expected the NZMCA to "continue to advocate for freedom camping and hold councils to a strict application of the freedom camping laws".
"This is the challenge ahead of council as it develops a new bylaw."
The NZMCA has been approached for comment.
