Isle of Wight Council tried to fine Jon Platt Â£120 for taking his daughter to Florida during the school term.
But magistrates backed the father, so the council appealed to the High Court, which again ruled in Mr Platt's favour.
The Department for Education is meeting the council's legal costs.
The legal case rests on what constitutes "regular attendance".
Mr Platt has argued that even after the "once-in-a-lifetime" family trip to Disneyland, his daughter had 90% attendance at school and this argument was accepted by the High Court in May last year.
At the time Lord Justice Lloyd Jones said the case "raised a point of law of general public importance".
After losing the case the council, at the request of Schools Minister Nick Gibb, applied to the Supreme Court for permission to launch a final legal challenge.
New guidelines came into force in England in 2013 making the policy on unauthorised term-time absences the toughest in the UK.
The change followed concerns that some families had started to see going away in term-time as an entitlement.
Under the rules, if a school declares an absence unauthorised, the council can fine each parent Â£60 per child - and this doubles to Â£120 if not paid within 21 days.
Councils in England have varying policies on term-time holiday fines.  Some issue thousands of fines - others barely any.
The case is forcing many to look again at the detail.
Most parents simply pay the fines to avoid prosecution, but  Mr Platt says thousands have contacted him for advice on fighting the fines.
Many parents complain that the cost of going away in the school holidays can be four times as much as during term-time - but the government says there is clear evidence "that every extra day of school missed can affect a pupil's chance of gaining good GCSEs, which has a lasting effect on their life chances".
A DfE spokeswoman said the government's position remained that children should not be taken out of school "without good reason".
"That is why we have tightened the rules and are supporting schools and local authorities to use their powers to tackle unauthorised absence."
Ministers are also considering changing the law on term-time absences, depending on the outcome of the case.
Judgement is expected during the first part of 2017.
A council which lost a High Court case over fining a father who took his daughter on a term-time holiday is having its appeal heard at the Supreme Court.