Lohan filed the lawsuit in the State Supreme Court of New York in 2014, claiming that her image was used in the marketing for the game without her consent. She also claimed that Grand Theft Auto V character Lacey Jonas was an unauthorised reproduction of her image.
Last year, the Appellate Division Courthouse of New York State tossed the case, stating it was without merit.
Her appeal was accepted by the New York Court of Appeals on 16 February.
In dismissing the case on 1 September 2016, the Appellate Division said: “Lohan's claim that her image was used in advertising materials for the video game should also be dismissed.”
“The images are not of Lohan herself, but merely the avatar in the game that Lohan claims is a depiction of her.”
It added: “This video game's unique story, characters, dialogue, and environment, combined with the player's ability to choose how to proceed in the game, render it a work of fiction and satire.”