The ruling ends a lengthy legal wrangle between the Italian state and parent Soile Lautsi, who wanted crucifixes removed from Italy's public schools because she felt they infringed on the principle of secularism.
Lautsi took her legal challenge to the European court after her case was repeatedly rejected by Italian courts.
Today's ruling overturns a previous ruling by a lower chamber of the ECHR in 2009, which favoured Lautsi and determined that crucifixes should not be displayed in classrooms because they could be "disturbing" for students who were of other religions or atheists.
Legal counsel Roger Kiska, of the Alliance Defense Fund, was present at the court when the ruling was passed down today.
He welcomed the decision: "The European Court of Human Rights shouldn't overstep its authority and force a member nation to abandon traditions and beliefs that it has a sovereign right to protect if it so chooses.
"An outside judicial body demanding that a nation must forsake and discontinue how it handles millennia-old traditions is a step towards an authoritarian system that no country anywhere on the globe should welcome."
The ruling is important because it could have signalled a Europe-wide ban on the display of religious symbols in state institutions.
Kiska added: "A loss in this case would have meant, in essence, that it would be illegal under the European Convention on Human Rights to have religious symbols in any state institution anywhere in Europe. That would have set a dangerous example for the rest of the world."
The ruling is binding on all 47 countries that are members of the Council of Europe.