Eunice and Owen Johns, aged 62 and 65, from Oakwood, Derby, went to court after a social worker expressed concerns when they said they could not tell a child a "homosexual lifestyle" was acceptable.
The Pentecostal Christian couple had applied to Derby City Council to be respite carers but withdrew their application, believing it "doomed to failure" because of the social worker's attitude to their religious beliefs.
Today they asked judges to rule that their faith should not be a bar to them becoming carers, and the law should protect their Christian values.
But Lord Justice Munby and Mr Justice Beatson ruled that laws protecting people from discrimination because of their sexual orientation "should take precedence" over the right not to be discriminated against on religious grounds.
The Johns are considering an appeal.
Outside the Royal Courts of Justice in London, where the decision was given, Mrs Johns stood alongside her husband as she said: "We are extremely distressed at what the judges have ruled today.
"All we wanted was to offer a loving home to a child in need. We have a good track record as foster parents.
"But because we are Christians, with mainstream Christian views on sexual ethics, we are apparently unsuitable as foster parents.
"We are unsure how we can continue the application process following the court's ruling today.
"We have been excluded because we have moral opinions based on our faith and we feel sidelined because we are Christians with normal, mainstream, Christian views on sexual ethics.
"The judges have suggested that our views might harm children.
"We have been told by the Equality and Human Rights Commission that our moral views may 'infect' a child.
"We do not believe that this is so. We are prepared to love and accept any child. All we were not willing to do was to tell a small child that the practice of homosexuality was a good thing.
"Worst of all, a vulnerable child has now likely missed the chance of finding a safe and caring home at a time when there are so few people willing to foster or adopt.
"We feel excluded and that there is no place for us in society.
"We have not received justice. We believe that an independent inquiry is needed to look into this."
Ben Summerskill, chief executive of Stonewall, the lesbian, gay and bisexual charity, said: 'We're delighted that the High Court's landmark decision has favoured 21st-century decency above 19th-century prejudice.
"In any fostering case the interests of the 60,000 children in care should override the bias of any prospective parent."
"Thankfully, Mr and Mrs Johns's out-dated views aren't just out of step with the majority of people in modern Britain, but those of many Christians too. If you wish to be involved in the delivery of a public service, you should be prepared to provide it fairly to anyone."
The Christian Legal Centre reacted to today's ruling with dismay and warned "fostering by Christians is now in doubt".
The organisation said the judges had effectively ruled "homosexual 'rights' trump freedom of conscience in the UK".
The judges had stated that "biblical Christian beliefs may be 'inimical' to children, and implicitly upheld an Equalities and Human Rights Commission (ECHC) submission that children risk being 'infected' by Christian moral beliefs".
The CLC said the judgment summary "sends out the clear message that orthodox Christian ethical beliefs are potentially harmful to children and that Christian parents with mainstream Christian views are not suitable to be considered as potential foster parents".
Andrea Minichiello Williams, chief executive of Christian Concern and the CLC, said: "The judges have claimed that there was no discrimination against the Johns as Christians because they were being excluded from fostering due to their sexual ethics and not their Christian beliefs.
"This claim that their moral beliefs on sex have nothing to do with their Christian faith is a clear falsehood made in order to justify their ruling.
"How can judges get away with this?
"What has happened to the Johns is part of a wider trend seen in recent years.
"The law has been increasingly interpreted by judges in a way which favours homosexual rights over freedom of conscience.
"Britain is now leading Europe in intolerance to religious belief."
The case, thought to be the first of its kind, has been described by Christian lawyers as vital for religious freedoms and values.
An open letter signed by senior clerics, including former archbishop of Canterbury Lord Carey, has already warned that gay rights laws put homosexual rights over those of others.
Roman Catholic adoption agencies have closed because they cannot reconcile the requirements under the new equality laws with their belief that children should not be placed with gay couples.
At last year's hearing of the Johns' case at Nottingham Crown Court, Paul Diamond, representing the Johns, argued that the courts should protect Christian values as they were recognised as "giving a moral framework to values in our country".
He said the Johns had fostered 15 children in the past and wanted to be respite carers for short-term placements for a single child between five and 10.
He said: "They say they would offer a secure and loving home relationship to a young child whose family are unable to cope and need a short break."
Jeremy Weston, representing Derby City Council, said the Johns' original application, made in 2007, had never been decided.
He said: "It had been taken up again in March 2009, when the fostering panel decided to defer a decision, and it was decided to take the situation to a judicial review.
"The city council needs clarity on this matter. It defends diversity and equality and has treated the Johns as it would have treated anyone else.
"It would be inappropriate for the council to approve foster carers who cannot meet minimum standards.
"It would be difficult and impractical to match children with Mr and Mrs Johns if they feel that strongly.
"The council does not accept it has acted illegally towards the Johns, and has been fair and transparent at all times, which is why a final decision was never taken by the authority."
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