The case was brought by the European Commission. There was no punishment for Germany, but German producers will now have to change the name of their cheese.
The ruling echoed an earlier judgment by the EU high court involving feta cheese.
In 2005, in a setback for Danish producers, the court said feta can only come from Greece and imitations cannot use that name.
Germany had argued that Parmesan was a generic term for a type of hard, crumbly cheese that is often grated over food and cannot claim an Italian uniqueness.
The court disagreed, saying Parmesan was "clearly a translation of 'Parmigiano Reggiano."' It added that Germany had provided some "quotations from dictionaries and specialist literature" about Parmesan but these shed no light on how "the word ParmeEan is perceived by consumers."
In Parma, a producers' alliance, the Parmigiano-Reggiano Cheese Consortium, celebrated the ruling as a "victory for all the producers and consumers for whom we created strong quality."
In its judgment, the EU court also said it was up to Italy to monitor the illegal use of the name in Germany and alert the German authorities of brand name violations.
The EU court's judgment is important because national food is not just an emotional issue - it's big business.
The German dairy industry estimates German farmers produce some 10,000 tons of "Parmesan" a year.
The Italian agricultural lobby Coldiretti believes that one out of every four Italian products sold abroad is an imitation - representing $24.7 billion in sales.
Parmigiano Reggiano and the very similar Grana Padano are the two most imitated Italian products in the world. It is sold as Parmesao in Brazil, Regianito in -rgentina, Parmeson in China and Parmesan in North America.