The decision means the historic overhaul - opposed by virtually all Republicans including Mitt Romney, Mr Obama's challenger - will continue to go into effect over the next several years, affecting the way that countless Americans receive and pay for their medical care.
The decision, written by conservative Chief Justice John Roberts, sided with Obama on the centerpiece of the law, which requires all Americans to have health insurance or face a federal fine.By letting the law stand, the decision keeps the United States on a course toward joining all other major developed countries in guaranteeing health care for all its citizens.
Republicans, with an eye on the upcoming presidential election, were quick to respond.
"Today's Supreme Court decision sets the stakes for the November election. Now, the only way to save the country from ObamaCare's budget-busting government takeover of health care is to elect a new president," party Chairman Reince Priebus said in a statement.
The case was the most closely watched one before the court since a 2000 ruling resulted in George W. Bush being declared the winner of the presidential election.
Both Mr Obama and Mr Romney were expected to comment on the decision later Thursday from Washington, with Mr Obama scheduled to speak at the White House around midday.
Polls show a majority of Americans do not support the health care overhaul, which, ironically, was based on a plan put in place in Massachusetts when Romney was governor there. The Massachusetts law has been widely supported by residents since it took effect in 2006.
While Mr Romney defends the Massachusetts plan, he has said such changes should be left to the individual states and not be imposed by the federal government. He has promised to revoke the health care overhaul if he wins the White House in November.
After the ruling, Republican campaign strategists said Romney will use it to continue campaigning against "Obamacare" and attacking it as a tax increase.
"Mr Obama might have his law, but the GOP (Republican Party) has a cause," said veteran campaign adviser Terry Holt. "This promises to galvanize Republican support around a repeal of what could well be called the largest tax increase in American history."
The law's centerpiece takes effect in 2014, at the same time that the law would prohibit insurance companies from denying coverage to people with existing health problems. Most experts had said the coverage guarantee would balloon costs unless virtually all people joined the insurance pool.
Most Americans already are insured. The law provides subsidies to help uninsured middle-class households pay premiums and expands federal health care for poor people.
An estimated 26 million people will remain without health coverage once the law is fully implemented, including illegal immigrants, people who don't sign up and elect to face the fine instead, and those who can't afford it even with the subsidies.
The court did find problems with the law's expansion of Medicaid - federal-state health coverage for the poor - but even there, it said the expansion could proceed as long as the federal government does not threaten to withhold states' entire Medicaid allotment if they don't take part in the law's extension.
The court's four liberal justices, Stephen Breyer, Ruth Bader Ginsburg, Elena Kagan and Sonia Sotomayor, joined Roberts in the decision. Justices Samuel Alito, Anthony Kennedy, Antonin Scalia and Clarence Thomas dissented.
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