This should allow the government of Socialist Pedro Sanchez to go ahead with its plans to move the remains from the Valley of the Fallen mausoleum to the family tomb at Mingorrubio El Pardo, a state cemetery on the outskirts of Madrid.
Franco, who ruled Spain from his victory in the 1936-1939 civil war until his death in 1975, remains a contentious political touchstone in Spain.
The Socialists have long sought to turn the Valley of the Fallen complex outside Madrid into a memorial to victims of the civil war, unleashed by Franco, in which about 500,000 people were killed.
Nearly 34,000 dead from the civil war are buried there, including many who fought for the losing Republican side and whose bodies were transferred to the site during Franco's dictatorship without the permission of families.
"The fourth section of the third chamber has unanimously agreed to dismiss in its entirety the appeal filed by the family of Francisco Franco in relation to the exhumation of Francisco Franco agreed on by the government," the court statement said.
Franco's family had appealed both against exhuming his remains and against the government's plans to move them to the El Pardo cemetery. Were his remains to be moved, they wanted them to go to the Almudena Roman Catholic Cathedral adjacent to the Royal Palace in central Madrid, alongside his daughter.
A government report said last December that the Almudena cathedral, located right in the centre of Madrid not far from the royal palace, was unsuitable as a burial place for security reasons.
"I hope the judges deliver justice ... justice over a murderer who killed so many," 79-year old retiree Jose Lopez, had said before the ruling was announced, tears springing to his eyes as he spoke while waiting outside the Supreme Court. His father lost a brother in the war.
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