The judgement was made just after 10:15 on Tuesday morning.
The Western Cape High Court previous year made a landmark ruling, declaring that it is an infringement to ban the use of dagga by adults in their private homes. However, the state appealed this decision, putting it on the backburner for another year.
The court accepted medical studies that showed alcohol caused more harm than dagga and that there was little data to show that criminalising dagga reduced harmful use.
It suspended its order of invalidity for a period of 24 months to give Parliament an opportunity to correct the constitutional defects in the two acts.
The court did not rule on how many grams an adult will be allowed to use or more crucially carry.
But in a unanimous judgment read by Deputy Chief Justice Raymond Zondo, the Constitutional Court decriminalised home consumption, saying "the use of cannabis must be for the personal consumption of the adult".
The Constitutional Court dispensed with the High Court's limitation of its order to the use, cultivation or possession of cannabis at home or in private dwelling.
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Previously, possessing, growing or using marijuana for personal use - even in small quantities - exposed users to fines of up to hundreds of dollars as well as jail time.
Activists clutching banners reading "Weed are free now" and Rastafari flags gathered outside the court in central Johannesburg.
Celebrations broke out in the court, which was packed with marijuana advocates and members of South Africa's Rastafarian community.
This also extended to cultivating cannabis in a private place for personal consumption in private.
South Africa's government had opposed its legalisation, arguing the drug was "harmful" to people's health.
Globally, the legal status of cannabis varies widely.