The four men, three British and one Canadian, had won an appeal court judgment in October 2004 allowing them to sue named individuals for compensation, but not the Saudi government.
The Saudi government appealed against that decision in April, arguing that its officials are protected from civil litigation in Britain under the State Immunity Act. The British government supported the Saudi case.
On Wednesday, five judges sitting in the House of Lords, Britain's upper house of parliament, ruled in favour of the Saudi position.
Lord Bingham of Cornhill, one of the judges, said the notion of immunity for individual officials was "fundamental to the principle of state immunity".
"A state is either immune from the jurisdiction of a foreign court or it is not," he said. "There is no halfway house and no scope for the exercise of discretion."
Lord Hoffmann, another of the judges, said: "The question is whether the claimants, who allege that they were tortured by members of the Saudi Arabian police, can sue the responsible officers and the Kingdom of Saudi Arabia itself.
"The court of appeal held that they could sue the officers but that the kingdom was protected by state immunity. In my opinion both are so protected."
"It's all down to money and oil and aeroplanes. We're just little pawns in a big game"
Three of the men - Sandy Mitchell, Les Walker and William Sampson, the Canadian - were arrested after bombings in Saudi Arabia six years ago and say they were tortured into admitting responsibility.
The fourth, Ron Jones, says he was beaten after being arrested in Riyadh in March 2001 after a bomb attack.
Speaking outside the House of Lords in London on Wednesday, Walker said: "It's all down to money and oil and aeroplanes. We're just little pawns in a big game."
Tony Blair, the British prime minister, said Britain's "strong position against torture remains unchanged", but that the government had intervened in the case to ensure that the rules of international law were represented.
Sampson criticised Britain's State Immunity Act and accused the government of hypocrisy in refusing to amend it.
'They are more concerned with holding cocktail parties for torturers than in ensuring justice for their own citizens'
"They are more concerned with holding cocktail parties for torturers than in ensuring justice is done for their own citizens," he said.
The men had been backed by the human rights organisations Amnesty International, Redress and Justice.
A lawyer representing Walker, Sampson and Mitchell said they would take the case to the European Court of Human Rights.