Gerlinde Pommer's family owned the yellow corner house in the northern town of Braunau on the border with Germany for nearly a century.
The government took control of the dilapidated building in December 2016 after years of legal wrangling with Pommer.
Austrian authorities have been keen to prevent the premises, where Hitler was born on April 20th, 1889, from becoming a neo-Nazi shrine.
Although he only spent a short time at the property, it continues to draw Nazi sympathizers from around the world.
In January, a regional court ruled that the state should pay Pommer €1.5 million ($1.7 million) in compensation, much more than the €310,000 she had been originally offered.
But another tribunal overturned this verdict in April, finding that the current market price – set by a court-appointed expert at €810,000 excluding any rental income – would constitute an appropriate amount of compensation.
Austria's highest court has now upheld the April ruling, meaning Pommer will receive less compensation than she sought but still more than she had been originally offered.
“After the court's decision on compensation, a use for Hitler's birth house can now be found within the framework of the law to prevent any sort of Nazi-related activity,” Interior Minister Wolfgang Peschorn said in a statement.
Authorities will invite submissions from architects about the future of the site, the statement said without giving further details.
Pommer had been renting the 800-square-metre property – which also has several garages and parking spaces located behind the main building – to the interior ministry since the 1970s.
The government paid her around €4,800 a month and used it as a centre for people with disabilities.
But this arrangement fell apart in 2011 when Pommer refused to carry out essential renovation work and also declined to sell it.
Since then, the building has lain empty.
At one point, the interior ministry was pushing to have it torn down but the plans ran into angry resistance from politicians and historians.
Every year on Hitler's birthday, anti-fascist protesters organize a rally outside the building.