The Environment Council of Central Queensland group said coal mining warms the planet and threatens Australian wonders such as the Great Barrier Reef.
It argued unsuccessfully that Environment Minister Tanya Plibersek should re-consider proposals to extend or open new coal mining operations.
Australia is one of the world's largest coal exporters.
The group said it sent more than 3,000 documents to the minister showing the impact of climate change on more than 2,000 protected species and places.
It said Plibersek unlawfully refused to act on the "expert and scientific evidence of climate risk".
Justice Shaun McElwaine dismissed the case, saying the environment minister was "not obliged to reason in the manner contended by the applicant".
The minister could legally make her decision while aware of the "potentially catastrophic" effects of climate change, he said.
The judge said the group's arguments regarding the minister's powers and consideration of climate change were ultimately a matter for parliament to consider.
The environmental group's legal case focused on applications to extend coal mining into the 2040s at two sites in New South Wales state that are owned by MACH Energy and Narrabri Coal Operations.
The applications are in the final stages of the state and federal approvals process.
Both coal mining firms joined the minister in defending the case.
The environmental group's president Christine Carlisle said she was "bitterly disappointed" with the decision.
"Those mining companies might be celebrating tonight, but there is no way a responsible government could call this a win. It's devastating for us all," she said.
An appeal or injunction are among the responses being considered, she said.
A spokesperson for Plibersek told AFP the government had received the judgement and would "carefully work through its implications".
Australia has committed to cutting carbon emissions by 43 percent by 2030 from 2005 levels, on a path to reaching net-zero emissions by 2050.
The centre-left Labor government has, however, refused to rule out approving new coal mines.
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