"This dispute is very much alive," the justices said in their ruling.
The jurisdictional matter before the high court involved a U.S. Army sergeant from Alabama and his Scottish-born wife, who returned alone to her home country with their daughter, Eris.
A federal court said the child should remain in Scotland since it was her "habitual residence" under international law. The court also said the custody issue was moot since the girl was overseas.
Lynne Chafin and her lawyers said the purpose of the Hague Convention treaty was to stop children like her 5-year-old daughter from bouncing back and forth between countries over custody.
But the girl's father, Jeffrey Chafin, says the custody fight began in American courts where the girl was living at the time, and that his legal claims were never fully heard in those venues.
The Obama administration supported the father and the Supreme Court ultimately sided with him as well, saying his appeal could continue.
"The Hague Convention mandates the prompt return of children to their countries of habitual residence. But such return does not render this case moot; there is a live discussion between the parties over where their child will be raised," the justices said.
More than 80 nations are a party to the treaty, including the United States and Britain.
The case is: Jeffrey Chafin v. Lynn Chafin (11-1347)