Ms Lagarde was French finance minister in 2008 when she approved a payout of €400m to a politically connected businessman.
The IMF managing director is accused of negligence and could face a year in prison along with a €15,000 fine if convicted. She denies wrongdoing.
A special court ruled in December she should stand trial. Her appeal against that decision was rejected on Friday by France’s Court of Cassation.
She will be tried at the Court of Justice of the Republic, which tries government ministers for alleged wrongdoing while in office.
A date has not been set for the trial.
Ms Lagarde’s lawyer, Patrick Maisonneuve, said that he was convinced she would be exonerated.
The case involves Bernard Tapie, who sued the state for compensation after selling his stake in sports company, Adidas, to Credit Lyonnais in 1993.
He accused the bank of defrauding him after it resold his stake for a much higher sum.
Ms Lagarde signed off on a private arbitration panel’s ruling that he should get the €400m in compensation, including interest.
The unusually generous payout with taxpayers’ money provoked public outrage.
Mr Tapie has been ordered to pay back the entire 400m euros, but has appealed.
The magnate and TV star was close to Ms Lagarde’s boss, then-President Nicolas Sarkozy.
The investigation began in 2011, soon before Ms Lagarde was named to head the IMF.
IMF spokesman, Gerry Rice, said on Friday that the Executive Board “continues to express its confidence in the managing director’s ability to effectively carry out her duties”.
.Source: Sky News