In its landmark ruling, the Inter-American Court of Human Rights ordered the government to pay reparations to the family of Vicky Hernández, 26, who was fatally shot in northern Honduras.
The country has also been ordered to enact new measures to prevent violence and discrimination against LGBT people.
Campaigners have hailed the decision as a watershed moment for Honduras.
The ruling, made on the anniversary of Ms Hernández's death, will set a legal precedent in Latin America, however the Honduran government has not yet commented on the court's decision, and it is not clear how or when it will enact the court order.
Honduras profile
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Rights groups say Latin America is one of the most dangerous regions in the world for transgender people, and has seen a wave of violence and discrimination against the LGBT community since a coup in June 2009 which ousted then-President Manuel Zelaya.
Vicky Hernández: Court says Honduras to blame for trans woman's murder
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