The precedent-setting ruling, reached by a narrow 4-3 margin, found that the search must be directly related to the circumstances of a person's arrest and that investigators must keep detailed records of the search.
In a dissenting opinion, the three opposing justices said the police should be required to obtain a search warrant in all cases, except rare instances where there is a danger to the public, police or the evidence itself.
It is the first Supreme Court ruling on cellphone privacy, a 21st-century issue that has already spawned a series of divergent lower court decisions.
But Thursday's ruling failed to satisfy privacy advocates who say it doesn't do enough to protect people from invasive searches of a personal device that already holds a wealth of personal information.
The high court dismissed the appeal of the 2009 armed robbery conviction of Kevin Fearon, who argued that police violated his charter rights when they searched his cellphone without a warrant after he'd robbed a Toronto jewelry kiosk.
The court agreed that the police had in fact breached Fearon's rights, but said the evidence against him on his cellphone should not be excluded.
"The police simply did something that they believed on reasonable grounds to be lawful and were proven wrong, after the fact, by developments in the jurisprudence," Justice Thomas Cromwell wrote for the majority.
"That is an honest mistake, reasonably made, not state misconduct that requires exclusion of evidence."
Cromwell said the court was trying to strike a balance between the demands of effective law enforcement and the public's right to be free of unreasonable searches and seizures under Section 8 of the Charter of Rights and Freedoms.
"In my view, we can achieve that balance with a rule that permits searches of cellphones incident to arrest, provided that the search — both what is searched and how it is searched — is strictly incidental to the arrest and that the police keep detailed notes of what has been searched and why."
Fearon's phone had no password protection, but the justices said whether or not a cellphone is locked makes no difference to a user's expectation of privacy.
The ruling laid out detailed criteria to guide police.
The arrest must be lawful, and the search must be "truly incidental to the arrest" and based on a purpose consistent with "valid law enforcement," meaning the protection of the police, accused or the public.
Such purposes would include preserving evidence and discovering new evidence, "including locating additional suspects, in situations in which the investigation will be stymied or significantly hampered absent the ability to promptly search the cellphone incident to arrest."
Moreover, the ruling said a phone can subjected to a warrantless search if the "nature and the extent of the search are tailored to the purpose of the search" if police "take detailed notes of what they examined on the device and how it was searched."
Fearon's lawyer Sam Goldstein said it was a "good day" for enhanced privacy rights in Canada because of the added requirements imposed on police.
"It's step forward in recognition of the importance of digital privacy rights, but perhaps not the complete step that concerned Canadians would like."
The Canadian Association of Chiefs of Police said officers across Canada would be made aware of the new criteria.
"This decision will assist police to pursue their investigations promptly upon making arrest where there is some reasonable prospect of finding evidence within a cellular phone, while minimizing intrusion into peoples’ private information, " Chief Clive Weighill, the association's president, said an emailed statement.
The ruling failed to satisfy some privacy rights advocates.
Raji Mangat, a lawyer with the British Columbia Civil Liberties Association, said the decision was a disappointment because the court failed to strike the right balance between privacy rights and law enforcement.
She said forcing police to get a search warrant "would not be an onerous requirement."
"This type of technology is fundamentally different from other types of place searches, like searching a briefcase or searching a filing cabinet."
The U.S. Supreme Court ruled earlier this year that a search warrant is mandatory for all police searches of cellphones, said David Christopher, spokesman for the group OpenMedia.ca.
"Cellphone searches can be even more revealing than a police officer coming into somebody's home and searching through their personal effects, which has long required a warrant."
That lack of proper note-taking was the one flaw the high court identified in Fearon's arrest, but it said that wasn't enough to exclude the evidence that was gathered from his phone.
After police arrested Fearon, they found a relevant draft text message that referred to "jewelry" and photographs, including the handgun used in the robbery.
"We did it," the text message read in part.
Writing for the three dissenters, Justice Andromache Karakatsanis said police should need a warrant in all cases to search a cellphone.
"The intensely personal and uniquely pervasive sphere of privacy in our personal computers requires protection that is clear, practical and effective," she wrote.
The decision puts forward an "overly complicated template" for police to follow, she added.