The ride-hailing app went to court after Transport for London (TfL) said that drivers should have to prove their ability to communicate in English.
Uber argued that the standard of reading and writing required by the test was too high.
The US firm said the test was "unfair and disproportionate" and it would appeal against the court's decision.
The ruling will also apply to all minicab firms in London.
"TfL are entitled to require private hire drivers to demonstrate English language compliance," said Judge John Mitting as he rejected Uber's claim.
Tom de la Mare QC, for Uber and the drivers, told the judge that the language requirement would result in 70,000 applicants failing to obtain a licence over three years.
The proposals would have a disproportionate impact on drivers from countries where English was not generally spoken and give rise to "indirect discrimination on grounds of race and nationality".
TfL argued that the requirements were vital to ensure passenger safety and to raise standards.
Sadiq Khan, the Mayor of London, said: "Drivers being able to speak English and understand information from passengers and licensing requirements is a vital part of ensuring passengers get the high standard of service they need and deserve.
"TfL will of course look at the High Court judgment in detail to ensure all our policies fully comply."
Sam Dumitriu, head of projects at the Adam Smith Institute, a conservative think tank, criticised the ruling.
"These tests are not only expensive but excessive, and will do little to improve public safety. We've already seen London taxi drivers of 20 years or more struggling with essay questions about the Aurora Borealis and snowboarding, do we need them to have read Shakespeare too?" he said.
"There's clearly no public interest here, only the interests of the vocal Black Cab Lobby. Sadiq Khan should listen to drivers and scrap them."
Uber said the judge ruled in its favour on three other points, including not having to open a UK-based call centre.

Last month Cornwall Council's Independent-Lib Dem cabinet voted to go ahead with the bid for Truro to secure the title in 2023.
At the time the city's mayor said he had not been consulted about the plans.
The decision will now face further scrutiny after Conservative councillors complained.
More on the culture bid and other stories from Cornwall
They claimed Truro started working on the bid too late and other interested cities, including Leeds and Milton Keynes, had been putting together detailed plans for several years.
"We've been told for four years we've got no money, we're a 'no-money council' and you suddenly produce more than £500,000 for a bid to become the European Capital of Culture," said councillor Fiona Ferguson.
"I think it's entirely unrealistic to spend money on this sort of thing. It's a vanity project."
She claimed Brexit also meant any money invested in the project could be wasted, as the UK may no longer even be eligible to take part.
However, in the past three non-EU cities have held the title, Istanbul in 2010, Stavanger in Norway in 2008 and Reykjavik, Iceland, in 2000.
The Department for Culture, Media and Sport, which launched the contest in December, said it was continuing under the assumption a UK city will host the event in 2023.
Cornwall Council said the cabinet's decision was being called in on the grounds that there was "inadequate consultation with stakeholders prior to the decision being made" and that there was not sufficient evidence "on which to base a decision".

John Henry Jones, from Trevor, near Llangollen, went missing in 1970.
His family came forward after the reconstructed face of a man found buried in Staffordshire in 1971 was shown on the BBC's Crimewatch.
But Det Insp Dan Ison, of Staffordshire Police, said DNA tests showed the man was not Mr Jones.
Work had been carried out by a dental expert which suggested similarities between Mr Jones's teeth and the man found in Burton-upon-Trent.
"While the DNA test has not resulted in an identification of the body found in Burton, we have been able to rule Mr Jones out of our enquiries," Det Insp Ison said.
"Forty-six years have passed, but the investigation remains open and we'd ask people to check the image and contact us if they have new information."
Uber has lost its attempt to prevent its drivers being forced to take English language tests.
[NEXT_CONCEPT]
A £500,000 bid for Truro to become European Capital of Culture has stalled amid claims it is a poorly-considered "vanity project".
[NEXT_CONCEPT]
An unidentified body found buried in a shallow grave 46 years ago is not a missing man from Denbighshire, detectives have said.