Lohan was suing Rockstar's parent company, Take-Two Interactive Software Inc, because she believed a character in Grand Theft Auto V looked like her.
Character "Lacey Jonas" is an actress and Lindsay's legal team say it is based on a picture taken of the star in 2007.
The court threw out the case on Thursday.
Judges explained that the "video game's unique story, characters, dialogue, and environment, combined with the player's ability to choose how to proceed in the game, render it a work of fiction and satire".