Pell, the highest ranking Catholic worldwide to be convicted of child sex offenses, was sentenced in March to six years in jail after being found guilty on five charges of abusing the two boys at St Patrick's Cathedral while he was Archbishop of Melbourne in the late 1990s.
There was no immediate comment from the Vatican on the court's decision.
Pell appealed his conviction to Victoria's Court of Appeal on three grounds, but mainly on the argument that the jury's verdict was unreasonable based on the evidence at the trial.
However the court ruled in a 2-1 judgment that the conviction was reasonable, with two judges saying the surviving victim was a "compelling witness, was clearly not a liar, was not a fantasist and was a witness of truth."
"As might have been expected, there were some things which he could remember and many things which he could not. And his explanations of why that was so had the ring of truth," said the two judges.
In contrast they said the evidence by people supporting Pell varied in quality and consistency.
They also dismissed Pell's argument that sexual abuse would have been physically impossible due to his heavy robes, saying "the robes were capable of being maneuvered in a way that might be described as being moved or pulled to one side or pulled apart."
Under the terms of his sentencing, Pell will be eligible for parole in October 2022, when he will be 81. Pell can seek to appeal this judgment in the High Court of Australia.
Outside the court in Melbourne, small groups of activists and victims of abuse cheered once they heard the verdict.
"Here we have today in our court, in Victoria, the Supreme Court, saying, 'we believe the victim and we uphold the jury's verdict'," Chrissie Foster, a prominent advocate for victims who has followed the case, told reporters.
"No one is above the law," she said.
But Mick O'Brien, 77, a retired criminal lawyer from Melbourne and practicising Catholic who said he knew Pell from college, described the decision as "perverse" because he felt there was enough evidence to find reasonable doubt.
Speaking outside the court, he said Pell was "authoritarian, but very intelligent and fair."
Pell has maintained his innocence and his legal team had appealed his conviction on three grounds.
The three Victorian Court of Appeal judges only permitted the defense to pursue one of those grounds, allowing Pell's team to argue that the verdict was unreasonable because there was insufficient evidence for a jury to be satisfied beyond reasonable doubt of his guilt.
"Having reviewed the whole of the evidence, two of the judges of the court of appeal ... have decided that it was open to the jury to be satisfied beyond reasonable doubt that Cardinal Pell was guilty of the offenses charged," Supreme Court of Victoria Chief Justice Anne Ferguson said, reading out a summary of the court's decision.The dissenting view from Justice Mark Weinberg said a victim "was inclined to embellish aspects of his account" and he said the evidence contained enough discrepancies and inadequacies to cause him to doubt Pell's guilt. Weinberg said that in his view the convictions could not stand.