Belle Gibson, 25, gained fame in Australia after she claimed to have beaten cancer using natural remedies rather than medical intervention.
She launched a successful app and cookbook, but later admitted the diagnosis was made up.
In ruling against Ms Gibson, a judge said the blogger may have "genuinely" believed what she was saying.
"Not all human beings are rational and reasonable all of the time," Federal Court of Australia judge Debbie Mortimer said on Wednesday.
