Jessica Ernst began legal action against Alberta's energy regulator and Calgary-based energy company Encana (TSX:ECA) in 2007, and amended her statement of claim in 2011 to include Alberta Environment.
She alleges fracking on her land northeast of Calgary released hazardous amounts of chemicals into her well. She also alleges that her concerns were not properly investigated.
The government had asked the court to strike it from the lawsuit. The province argued it doesn't have a private duty of care to individuals and is immune from prosecutions under its environment and water legislation.
Chief Justice Neil Wittmann of Court of Queen's Bench dismissed the government's application.
"There is a reasonable prospect that Ernst's claim that she is owed a private duty of care will succeed," he wrote. "There is also a reasonable prospect that Ernst will succeed in defeating Alberta's statutory immunity claims."
Wittmann ordered the province to pay Ernst's legal costs at triple the regular rate, because the province could have made its main arguments years ago instead of filing a separate application.
Ernst called the ruling a big victory for all Albertans. She said it shows that landowners can stand up and hold governments to account.
"I have been getting constant phone calls and emails from people around the world. Obviously the ruling means a lot to many people," she said Wednesday.
"The message is to the Alberta government: Smarten up and clean up your act."
An Alberta Justice Department spokeswoman said the government is reviewing the judgment to determine if it will appeal.
In its statement of defence, Encana has denied all of Ernst's allegations.
In September, the Alberta Court of Appeal upheld another ruling that said Ernst could not include the province's energy regulator in her lawsuit.
In that ruling, the Appeal Court judges said protecting administrative tribunals and their members from liability for damages is constitutionally legitimate.
Ernst said she is seeking leave to appeal the September ruling to the Supreme Court of Canada.
"The document is dated today, but I think it will take a few days for my lawyers to get it to the court in Ottawa."
Hydraulic fracturing involves pumping water, nitrogen, sand and chemicals at high pressure underground to fracture rock and allow natural gas or oil to flow through wells to the surface.
Earlier this year, a Council of Canadian Academies study said there is a major gap in understanding fracking's potential impacts on the environment and people, as well as how to mitigate accidental releases of chemicals or flowback water.
The U.S. Environmental Protection Agency is currently conducting a study to better understand any potential impacts of hydraulic fracturing on drinking water.
— By John Cotter in Edmonton