The interpretation of a colonial-era law has frustrated gay rights activists who are pushing for the 120-year-old statute to be removed from the books.
The Society Against Sexual Orientation Discrimination said the constitutional court's "dubious decision" means police can continue to arrest cross-dressers and transgender citizens in the South American country for ambiguous reasons.
They plan to appeal against the judgment.
The rare court challenge of the controversial 1893 law was filed by the rights group after several of its members were hauled before the courts and slapped with minor fines for wearing female clothing in 2009. The transgender litigants, who were arrested while waiting for taxis, were born male but say they identify as female.
Quincy McEwan, the director of transgender rights group Guyana Trans United, said the judge failed to define "improper purposes".