Former Florida Sen. Bob Graham, who co-chaired a joint congressional inquiry into the attacks, called the ruling a "very significant breakthrough," BrowardBulldog.org reported Tuesday.
Saudi Arabia was dismissed from the lawsuit in 2005 on grounds of sovereign immunity, although there are exceptions for acts of terrorism. Saudi officials had called allegations in the suit "categorically false."
In reinstating Saudi Arabia to the suit, the U.S. Second Circuit of Appeals said its own conflicting rulings had led to an "error of law" by U.S. District Judge George B. Daniels.
The case now goes back to Daniels for more action.
Michael K. Kellogg, a Washington, D.C., attorney representing Saudi Arabia, said the decision was "contrary to settled law" and that he would appeal the ruling.
The ruling comes as Congress considers the Justice Against Sponsors of Terrorism Act that would allow sponsors of terrorism to be sued in U.S. courts.
Sen. Charles Schumer, D-N.Y., introduced the bill in the Senate in September, saying he wanted to correct "flawed court decisions."