The High Court ruled the Sunday newspaper breached the motorsport boss's privacy with its expose of his sex session with five prostitutes in a London flat.
However, Justice Eady did not go so far as to award the exemplary damages Mosley sought to punish the paper for publishing accounts and circulating video footage of the orgy.
The paper's case suffered a setback when its star witness, one of the five prostitutes who took part and who sold it the story, failed to testify.
Mosley, who is the son of 1930s British fascist leader Oswald Mosley, has denied the paper's allegation that the session had a Nazi theme.
The emergence of his sexual preferences caused a major row in the Federation Internationale d'Automobile, the governing body for Formula 1 and many other motorsports.
While several of the sport's sponsors called for him to resign, he held on and survived an FIA members vote on whether he should be forced out.
"I can think of few things more unerotic than Nazi role-play," Mosley told the court. "All my life, I have had hanging over me my antecedents, my parents, and the last thing I want to do in some sexual context is be reminded of it."
Colin Myler, the News of the World editor, insisted it was "absolutely not true" that the Nazi aspect was false. The paper posted the enounter, filmed by one of the five prostitutes, on the web.
The paper's case first ran into trouble when its key witness, who secretly filmed the session, could not testify because of her "emotional and mental state".
The paper's case was also undermined after it materialised that it had promised to pay her £25,000, but only paid her half the amount. Myler blamed the credit crunch.
The judgement is seen as having major implications for future privacy issues.
In a statement Myler, said: "The News of the World believes passionately that its readers deserve to be informed of when the trust is placed in their elected leaders and public officials has been violated.
"It is not for the rich and the famous, the powerful and the influential, to dictate the news agenda, just because they have the money and the means to gag a free press.
"Unfortunately, our press is less free today after another judgement based on privacy laws emanating from Europe."
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