A central provision of the law requires police officers to ask for immigration papers if they have a reasonable suspicion that the person they have stopped, detained or arrested is in the country illegally.
The Department of Justice sued the State of Arizona, arguing that the power to regulate immigration rests with the federal government and that the Arizona law interferes with federal laws currently in effect.
Last July a District Court judge enjoined enforcement of the law, and today a panel of the Ninth Circuit Court of Appeals upheld that ruling.
Judge Richard Paez, writing for a split panel, said, "By imposing mandatory obligations on state and local officers, Arizona interferes with the federal government's authority to implement its priorities and strategies in law enforcement, turning Arizona officers into state-directed [Homeland Security] agents."
"Congress has created a comprehensive and carefully calibrated scheme" Baez wrote, "and has authorized the Executive to promulgate extensive regulations for adjudicating and enforcing civil removability."
Arizona Gov. Jan Brewer released a statement Monday vowing to appeal the ruling. "For decades the federal government has neglected its constitutional duty to American citizens by failing to secure the border," she said.
In court papers lawyers for the Department of Justice had argued, "The immigration framework set forth by Congress and administered by federal agencies reflects a careful and considered balance of national law enforcement, foreign relations, and humanitarian concerns -- concerns that belong to the nation as a whole, not a single state."
Justice Department lawyers said the Constitution does not permit the "development of a patchwork of state and local immigration policies throughout the country."
The law generated immediate national controversy when it was signed by Governor Janice K. Brewer in April 2010. Its defenders said that the states had to take a more active role in immigration enforcement because the federal government was failing to do so. Civil rights groups across the nation argued that the law would lead to racial profiling.
Linton Joaquin, General Counsel of the National Immigration Law Center, called the opinion today a "resounding victory and clear affirmation of the unconstitutionality of the law."
"It sends a clear message," he said, "to other states contemplating similar laws. Immigration enforcement is fundamentally a federal concern, and states are prohibited from enacting immigration legislation on their own."
The court said today that the Arizona law, if it were allowed to go into effect, could have a "deleterious effect on the United States' foreign relations" and noted that several foreign leaders, including the Presidents of Mexico, Bolivia, Ecuador, El Salvador and Guatemala have publicly criticized the law.
Baez wrote that the law "thwarts the Executive's ability to singularly manage the spillover effects of the nation's immigration laws on foreign affairs."
Even before today's decision, Governor vowed to take the case to the Supreme Court if necessary.
A Justice Department spokesman said he was "pleased" with today's ruling.