Perth District Court, in Western Australia, ruled that the woman, 36, must take off the full veil, also known as a burka or niqab, during her testimony, but the judge stressed the order did not set a national precedent.
The South African woman, known only as Tasneem, told the court she had worn the all-covering Islamic dress since she was 17-years-old, and had only removed it in the company of her husband.
But the defence said jurors would not be able to properly assess the credibility of her evidence without being able to see her facial expressions.
"The trial process must be fair to all concerned," the judge said. "In the end, and I stress in the circumstances of this particular case, I do not consider it to be appropriate to permit the witness to give evidence at trial while wearing a niqab.”
The judge was yet to decide whether the woman can give evidence by videolink to protect her modesty.
The case revived debate over the issue just days ahead of Australia’s national election.
Both Prime Minister Julia Gillard and her conservative rival Tony Abbott expressed discomfort at the sight of the burka.
"I would prefer that it was not worn, but I don't think we have the sort of problem in this
country that would require a ban," Abbott said.
Gillard agreed the "sight of the burqa on our streets is confronting", but said Australia was a country in which people should be “absolutely free to choose what they want to wear".