Monika Samaan was seven years old when she suffered salmonella encephalopathy -- a brain injury linked to food poisoning that also left her with a blood infection and septic shock -- in October 2005.
Several other family members also fell ill and they claimed Samaan's injuries, which include severe cognitive, motor and speech impairment and spastic quadriplegia were caused by a KFC chicken Twister wrap.
She went into a coma in hospital and was so ill last rites were given.
The Supreme Court ruled in the family's favour, finding that her sickness was caused by "a KFC Twister... consumed predominately by Monika and in lesser quantities by her family."
Justice Stephen Rothman said the chicken became contaminated "because of the failure of one or more employees of KFC" to follow proper preparation rules, which he described as "negligent".
"There is some evidence, which I accept, that some employees were unaware of the full consequences of a breakdown in the system that was to be implemented," Rothman said in his judgment.
"Nevertheless, the conduct of the employee was negligent and KFC, as the employer, is vicariously liable for the negligence."
An internal review of standards at the store in the months before Samaan's illess assessed them at "breakdown" level, with particular criticism of hygiene and food preparation, Rothman said.
Though compensation will be determined in a separate hearing Rothman described the now wheelchair-bound Samaan's injuries as being of a type and severity that were "most rare".
"She is now intellectually disabled, is unable to function independently, she needs total care and she will be unable to live a life filled with normal activities, relationships, milestones and achievements," he said.
"The plaintiff has been severely disabled at a very young age and as a result of her injuries, it is clear she will never enjoy the normal life that was expected of her prior to this catastrophic event."
KFC said it would appeal the decision.
"We believe the evidence showed KFC did not cause this tragedy and, after reviewing the judgment and seeking further advice from our lawyers, we have decided to appeal Justice Rothman's decision," said KFC Australia spokeswoman Sally Glover.
"We feel deeply for Monika and the Samaan family however we also have a responsibility to defend KFC's reputation as a provider of safe, high quality food."