Four people in the Mexican Society for Responsible and Tolerant Personal Use will now be permitted to grow and smoke their own marijuana.
In a country that faces drug violence on a massive scale, this is a significant ruling. Although the ruling only applies to the individuals who brought the case to the Supreme Court, activists see this as a huge first step.
People celebrated the ruling by smoking joints outside of the Supreme Court building.
Armando Santacruz, one of the plaintiffs who is a prominent businessman in Mexico, spearheaded the campaign and he told BBC "This has opened doors to many more cases."
But Mexicans are divided when it comes to the legalization of drugs. Mexico's President Enrique Pena Nieto has been firmly against any change to drug policy so the battle to legalise marijuana here has only just begun.
"If ... this supreme court is taking such an important step toward legalization of drugs, or at least some of them, I suggest that we are equally careful and responsible in crafting a ruling of the same magnitude," said Judge Jose Ramon Cossio, who voted in favour of the measure.
Mexico struggles with violent conflict from drug cartels which has seen tens of thousands of drug-related killings in the country every year.
The country was pressured to loosen its drug laws after the US made the drug legal in certain states.
In 2009, Mexico made it legal to carry up to 5 grams (.18oz) of marijuana.
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