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The unanimous verdict comes more than three months after the opposition-controlled National Assembly voted to impeach Yoon.
South Korea must now hold a national election within two months to find a new president.
Yoon’s declaration of martial law and subsequent impeachment plunged the country into political turmoil, with millions taking to the streets to denounce or support him.
Many experts say Yoon supporters will likely intensify their rallies in the wake of the court’s decision, prolonging national division.
After abruptly declaring martial law on December 3, Yoon sent hundreds of soldiers and police officers to the National Assembly.
He has argued that he sought to maintain order, but some senior military and police officers sent there have told hearings and investigators that Yoon ordered them to drag out lawmakers to prevent an assembly vote on his decree.
Enough lawmakers eventually managed to get in and voted to strike down Yoon’s decree unanimously.
The National Assembly voted to impeach Yoon on December 14, accusing him of violating the constitution and other laws by suppressing assembly activities, attempting to detain politicians, and undermining peace across the country.