Valerie Gauld's performance at work deteriorated after she became ill, but the tribunal ruled that Perth and Kinross Council "went too far too fast" in dismissing her for an irretrievable breakdown with her manager Linda Whiteford.
Mrs Gauld, 53, of Birkhill, near Dundee, joined the council in 2008 to carry out leasing and conveyancing.
In October 2008, she was diagnosed with cancer and took time off work for treatment. The disease was life-threatening and the initial prognosis was poor.
She returned to work on a phased basis in January 2009, but it wasn't until 2010 that problems with her workbegan to surface.
Mrs Whiteford said she found Mrs Gauld tense and confrontational, and she was sacked in March 2011 on the basis of her conduct towards Mrs Whiteford. .
The tribunal, chaired by judge James Hendry, found that Mrs Gauld's dismissal had been unfair and criticised the authority for thinking it was rare for cancer patients to suffer post- traumatic stress disorder.
The judgment stated: "We cannot understand how anyone can say that a condition that typically affects one in five people can come into such a category, or that the suggestion that because it manifested itself atypically disproves its existence."
A hearing will be held to decide her settlement.