The high court agreed with a federal court's decision to throw out the ban. The 9th U.S. Circuit Court of Appeals in Sacramento said the law violated minors' rights under the First and Fourteenth amendments.
The law would have prohibited the sale or rental of violent games to anyone under 18. Retailers who violated the act would have been fined up to $1,000 for each infraction.
The court deemed the law unconstitutional in a 7-2 vote.
California passed a ban in 2005 prohibiting minors from buying or renting games where players maim, kill or sexually assault people.
State officials said the ban was necessary because they believed such games harmed children's mental development and there was a state interest to prevent that.
However, video game makers immediately stopped the law from going into effect with a lawsuit, arguing the ban would violate their First Amendment rights.
Supreme Court justices asked: what's the difference between video games and books and movies? Should we ban cartoons for being too violent or rap music for its lyrics?
"The court has ruled that they should be treated just like any other entertainment products, like movies, books, magazines and the like," said Sean Bersell of the Entertainment Merchants Association, which argued in court.
It was the first time a case involving video games went before the highest court.
"That's like the tobacco industry saying there is no harm coming from smoking," said Tim Winter, president of the parents Television Council, which got the now-overturned ban on the books. "It is absolutely rubbish. There are more than 3,000 studies who have documented a relationship between a child's intake of violent media and their behavior."
Some parents were in favor of the ban.
"To me, there's a lot of violence in those games, so I would really like to take them out of the markets," Agoura Hills resident Karla Chismar said.
Elementary school principal Susan Rubinstein said parents should avoid exposing their children to such games since kids tend to imitate things they see.
More than 46 million American households have at least one video game system, with the industry bringing in at least $18 billion in 2010.