The guilt of Duane Buck, 53, is not at issue -- he was convicted of the brutal 1995 shooting deaths of his former lover and the man who was with her.
He was sentenced to die after the testimony of a defense psychologist that he was more likely to be a repeat offender because of his race during the penalty phase of his 1997 murder trial.
"Our law punishes people for what they do, not who they are," Chief Justice John Roberts wrote in the court opinion.
"Dispensing punishment on the basis of an immutable characteristic flatly contravenes this guiding principle," Roberts wrote.
Under Texas law, a person can be condemned to die only if the prosecutor can prove he or she represents a future danger to society.
Christina Swarns -- the attorney arguing Buck's case before the top US court and who also represents the NAACP Legal Defense Fund -- argued last October that the testimony of psychologist Walter Quijano "put the thumb heavily on the death scale" for her client.
"Given the persistence of racialized fears, stereotypes, and discrimination, this decision is as important to the country as it is to Duane Buck."
Kate Black, another attorney for Buck, said the ruling provides "hope that the ugliness of Mr Buck's tainted death sentence will soon be put behind us and he will receive a life sentence."
The American Civil Liberties Union (ACLU) also hailed the ruling, saying that the death sentence had demonstrated "blatant racial bias" against Buck.
"By ruling in Mr Buck's favor, the Supreme Court concluded that it is an 'extraordinary' error to allow a death sentence when there is a chance racial discrimination played a role in the death verdict," he added.
"This decision has broad implications, given the myriad ways racial bias determines who receives capital punishment in the United States."
Sentenced in Texas's Harris County, where nine percent of all US executions occur, a record in the country, Buck was seen by some anti-death penalty activists as another symbol of a judicial system poisoned by racial bias.
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