The decision comes days after Facebook chief executive Mark Zuckerberg faced intensive questioning by USA lawmakers over the company's collection and use of user data.
According to the judge's order, damages could rack up to billions of dollars if Facebook loses.
At the heart of the issue is a 2008 state regulation known as the Biometric Information Privacy Act, which prohibits the collection or use of biometric data without precise public disclosure.
This same judge has now certified a class of Facebook users who can be represented in the lawsuit, asserting that any IL users on whom Facebook's facial recognition technology was used since the "tag suggestions" feature was introduced in 2011 will be entitled to compensation if Facebook loses the class action suit.
In June 2011, Facebook introduced a feature in certain countries - the U.S. being one of them - giving users the ability to automatically tag people in their photographs. The judge said the potential damages could amount to billions of dollars.
On its help pages, Facebook says the face templates are made from information about the similarities in every photo the user has been tagged in.
US District Judge James Donato ruled that Facebook can be sued by three IL users who claim the firm gathered biometric data through facial recognition without their explicit consent. Violations of BIPA typically incur a fine of between $1,000 to $5,000.
Donato's decision to classify the suit as a class action means Facebook could be sued by millions of users in the state. While not trivial, BIPA's statutory damages are not enough to incentivize individual plaintiffs given the high costs of pursuing discovery on Facebook's software and code base and Facebook's willingness to litigate the case... And that paves the way for the class action lawsuit to proceed. Facebook switched the feature off in Europe in 2012 after an audit by Ireland's data watchdog.
The company has altered the controversial feature in the time since it was first rolled out to users back in 2011 by adding a more direct notification alerting users to the facial recognition features.