The conservative-dominated court kept in place a lower court order barring the deployment of troops on the city’s streets, AFP reported.
“At this preliminary stage, the Government has failed to identify a source of authority that would allow the military to execute the laws in Illinois,” the court said in an unsigned order.
Three conservative justices dissented from the decision.
Trump has sent National Guard troops to three other Democratic-led cities this year.
White House spokeswoman Abigail Jackson said the president “activated the National Guard to protect federal law enforcement officers.”
“Nothing in today’s ruling detracts from that core agenda,” Jackson added.
Illinois Governor JB Pritzker welcomed the ruling as a “big win for Illinois and American democracy.”
“This is an important step in curbing the Trump Administration’s consistent abuse of power,” Pritzker said.
The Trump administration had made an emergency appeal to the Supreme Court after two lower courts blocked the deployment.
Solicitor General John Sauer claimed federal agents in Chicago faced a “constant threat of mob violence.”
The court order “improperly impinges on the president’s authority and needlessly endangers federal personnel and property,” Sauer argued.
The Supreme Court’s rebuff marks a rare defeat for Trump at the top court.
It remains unclear how the decision will affect other legal challenges to Trump’s National Guard deployments.
California and Oregon have both filed legal challenges against the administration’s domestic use of the National Guard.
Trump sent troops to Los Angeles earlier this year to quell demonstrations.
A district court judge ruled that deployment unlawful, but an appeals court allowed it to proceed.
Approximately 300 National Guard troops remain activated in the Chicago area but are not engaged in operations.