The case concerns a Virginia public school district trying to prevent a female-born 17-year-old transgender student from using the boys' bathroom.
The justices are expected to rule on the case before the end of June.
The high court is one justice short after the death of Antonin Scalia, which could lead to a 4-4 decision.
Schools districts nationwide remain conflicted on whether to require transgender students to use bathrooms corresponding with the sex listed on their birth certificates.
The justices accepted a petition from Gloucester County, Virginia, ruling that the school board was not required to comply with a lower court's order that transgender student Gavin Grimm should be allowed to use the boys' bathroom.
Gavin, a student who was born female but identifies as male, came out as a transgender boy during his freshman year of high school.
He sued the school board, arguing that they discriminated against him and its bathroom policy violated his civil rights.
The US Court of Appeals for the 4th Circuit ruled in his favour in April.
The court deferred to President Barack Obama's directive that Title IX, the federal law which bans sex discrimination in public schools, extends to protect the rights of transgender students to use school bathrooms that correspond with their gender identity.
The Education Department issued that guidance to school districts across the country a month later, sparking backlash and leading 13 states to challenge the directive.
Critics say forcing students to use bathrooms consistent with the gender on their birth certificates is necessary for public safety.
A Texas federal judge issued a preliminary injunction in August blocking the department's position.
Texas judge blocks Obama's transgender bathroom directive
A 4-4 Supreme Court ruling would mean the 4th US Circuit Court of Appeals decision would remain in place.
But it would not set a legal precedent for other school districts across the country.
The Supreme Court has never directly ruled on transgender rights.
But the justices ruled in favour of a male-born transgender inmate who identified as a woman in 1994.
The inmate said she was beaten and raped by another inmate while held with male prisoners.
The US Supreme Court has agreed to hear a transgender rights case which could determine whether schools let students use bathrooms based on gender identity.