The court ruling could help defuse a potential diplomatic row between Turkey and France, but Turkish foreign Minister Ahmet Davutoglu said the cabinet will decide whether to restart economic, political and military meetings with Paris.
"The verdict is positive. I hope that everyone learns the necessary lessons from this," Davutoglu told reporters.
Asked whether this would lead to a restart of contacts with France, he said: "This verdict is still new. We will consider the subject of sanctions with the prime minister, president and cabinet."
The French parliament passed the law on Jan. 23 making it illegal to deny the killings of Armenians in 1915 was illegal.
But more than 130 French lawmakers from both houses of parliament and across the political divide appealed to the court arguing the events of 1915 were still being debated by historians and making it illegal to deny there was a genocide therefore compromised the right to free speech.
Muslim Turkey accused President Nicolas Sarkozy of trying to win the votes of 500,000 ethnic Armenians in France in the two-round presidential vote on April 22 and May 6.
Armenia, backed by many historians and parliaments, says about 1.5 million Christian Armenians were killed in what is now eastern Turkey during World War One in a deliberate policy of genocide ordered by the Ottoman government.
Turkey says there was a heavy loss of life on both sides during the fighting in which Armenian partisans supported invading Russian forces.
The Ottoman Empire collapsed after the end of the war, but successive Turkish governments and the vast majority of Turks feel the charge of genocide is a direct insult to their nation.