By not allowing Coy to use the girls' restroom, the school "creates an environment rife with harassment," Steven Chavez, the division director, wrote in the decision.
The school district, about 15 miles south of Colorado Springs, Colo., also showed "a lack of understanding of the complexity of transgender issues" by referring to Coy as a male or using quotes around "her" throughout the litigation, Chavez wrote.
The school district could not be reached for comment on the ruling Sunday.
Coy was born a male, but began at an early age to identify as a girl through toys and dress and started calling herself a girl between the ages of 4 and 6, according to the summary of the division's ruling.
Image: Girls' bathroom, via Shutterstock