Daniel Duggan has spent three-and-a-half years in custody over allegations he breached US arms-trafficking laws by training Chinese pilots in South Africa between 2010 and 2012.
He was arrested at the behest of the US in 2022 while at a supermarket in regional NSW, where he lived with his wife Saffrine and six children.
The Duggan family's years-long fight against extradition was dealt a heavy blow in December 2024 when then-attorney general Mark Dreyfus approved the extradition.
They challenged the decision in the Federal Court, which handed down its ruling on Thursday in the nation's capital.
Justice James Stellios dismissed the appeal and ordered Duggan to pay the government's costs in a brief but bruising decision.
An appeal against the judge's ruling can be lodged within 28 days.
Duggan's lawyers argued the offence he is accused of was not classified as an offence in Australia at the time, which is contrary to the requirements of an extradition treaty.
An offence must have been criminal in both the requesting and requested countries for an extradition to be legally permissible.
Ms Duggan gathered with supporters to hear the decision being handed down.
She has been open about the crippling financial toll the legal battle has taken on her family, who estimate their legal bills amount to about half a million dollars.
Duggan has been refused Legal Aid, while an injunction placed on his family's half-built house means they can neither sell it nor live in it.
He had been kept in a maximum security prison in central NSW around 100km from his family, Ms Duggan previously revealed.
Charges and an indictment were first filed against the Australian citizen in a sealed court case during US President Donald Trump's first term.
Duggan previously wrote in a letter from prison that he believed his activities were not illegal and Australian and US intelligence services knew of his work.
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