The woman, aged 69, had sought more than $1.76 million in damages claiming she suffered psychiatric injury from the state's negligence in placing her with a foster family in the late 1950s where she was allegedly sexually assaulted between the ages of three and five.
The woman, who cannot be named for legal reasons, also alleged that, while she was living in state care in the 1960s, she was sent on visits to family members during which suffered an attempted rape at age six by a teenage relative.
The Supreme Court last year permanently stayed the woman's case due to the difficulty in establishing what had happened more than 60 years ago given that both her foster parents and other witnesses who were adults at the time had subsequently died.
"The consequences of that passage of time for the availability of witnesses and evidence, is such that a fair trial is not possible and, accordingly, the exceptional step of granting a permanent stay of the proceedings is warranted," Chief Justice Helen Bowskill said.
Court of Appeal Justice Robert Gotterson on Tuesday upheld the decision to halt the case, finding "unsurmountable" issues in bringing the matter to trial.
In her claim for damages, the woman stated she had been diagnosed with post traumatic stress and psychiatric symptoms such as panic attacks, nightmares, dissociated states and difficulty concentrating.
The woman was removed from her parents as an infant and taken to the Cherbourg girls' dormitory about 170 kilometres northwest of Brisbane, and in 1957 was sent to live with a nearby Aboriginal foster family.
Authorities returned the woman to the dormitory in May 1959 with the official reason being that she appeared malnourished and she left state care completely in September 1966.
According to affidavits from other children living with the foster family at the time, they had also been sexually abused and tried to report this to the Cherbourg girls' dormitory only to be told by a senior staff member that they were "'little liars".
The woman was subject to Queensland's Aboriginal Protection and Restriction of the Sale of Opium Act that between 1897 and 1969 allowed the government to remove Aboriginal people to designated 'reserve' areas and keep them there.
In its defence, the Queensland government said it had a duty of care over the woman but did not accept that the steps it was required to take to discharge that duty would have prevented any of the alleged sexual assaults.
The government argued it would be prejudiced against at trial due to the lack of witnesses or documents to help defend itself and the difficulty of proving which traumatic elements of the woman's life had contributed to her psychiatric issues.
Following Tuesday's failed appeal against the permanent stay, the woman was ordered to pay the state's costs.
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