Campbell took her case to the High Court earlier this year in a landmark case after the paper revealed that she had a drug problem and that she attended Narcotics Anonymous meetings.
The newspaper was told by the High Court to pay Campbell £3,500 damages plus her legal costs of £750,000.
Giving the judgement at the Court of Appeal today, the Master of the Rolls, Lord Phillips, said the report, which appeared in February 2001, was in the public interest.
Phillips said the appeal raised the issue of how far the law provides protection against the media publishing details of an individual's private life.
Describing Campbell as an internationally famous model, he added that Campbell had gone out of her way to tell the media how she did not take drugs, which turned out to be untrue.
Campbell will now be faced with the prospect of a £750,000 legal bill including a £25,000 bill from the PR firm Freud Communications.
During the original case Campbell told the High Court of her shock at discovering she had been charged for crisis management advice by Freud Communications. Campbell said she thought advice from agency chairman Matthew Freud was as a 'friend'. The agency's £25,000 fee was later reduced to £15,000.
The news failed to buck the publisher's share price, however, which is down 3.9% to 330p.
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