An activist and a student are arguing that the ban violates their right to equality under the Basic Law, the city’s mini-constitution.
Saturday's vote shattered Taiwan's reputation as a beacon of liberalism in Asia.
Activists say homophobia and anti-LGBTQ attacks have risen since President John Magufuli’s 2015 election.
The president-elect has previously boasted of being a "proud homophobe."
The gay dating and social networking app kicked off its Kindr campaign this week.
Advocates say the country has experienced a steady rise in anti-LGBTQ discrimination in recent months.
The medically denounced practice remains a contentious topic across the globe.
Advocates warned that the sentence would increase anti-LGBTQ discrimination in the country.
President Carlos Alvarado welcomed the ruling, and said, “Our commitment to full equality remains intact."
Officials cited the presence of drag queen Conchita Wurst in their criticisms of the show.