The Federal Court found in favour of the internet giant which had appealed an order by a lower court last year to ensure all people and cars pictured on Street View were unidentifiable.
The official Swiss data protection watchdog took Google to court in November 2009 after complaining the service's coverage of Switzerland flouted privacy rules.
Federal Court judges said that to blur all faces and registrations went too far but that individuals could request the blocking of any data they were concerned about, the Swiss ATS news agency reported.
They also said the measure should be in place close to sensitive sites such as hospitals, schools and courts.
Images of private spaces such as gardens should meanwhile not be published without consent, judges said.
Street View allows users to see a ground level panoramic view of some locations on Google Maps, based on still photographs taken by specially equipped vehicles.
Google says it must rely on an automatic blurring system for faces and vehicle registration plates which does not guarantee that 100 percent are not identifiable.
"We are happy that the Federal Court ruled in our favour on an essential point of our appeal, recognising the existence of strong tools for checking and protecting private life, such as the automatic blurring system for faces and vehicle registration plates," said Daniel Schoenberger, legal head of Google in Switzerland.
"We are looking in detail at the decision and discussing data protection with the federal authorities with an eye to the different options available to us."
Google's Street View has sparked similar privacy concerns and legal battles in several other countries, including Belgium, France, Germany and the Netherlands.