The case is expected to determine the future of Christiania, a partially self-governing neighborhood of more than 900 residents that was created in 1971 when hippies began squatting at a derelict 18th-century navy fort on state-owned land.
Christiania became an enclave with psychedelic-colored buildings, open trade of hashish and limited interference from the government. But when authorities started cracking down on the drug trade in 2004 and later announced plans to tear down buildings to build new apartment blocks, the squatters fought back.
They sued the government in 2006, claiming they have the right to use the land, even if they don't own it. The center-right government rejects that claim.
The dispute has sparked numerous clashes between police and residents, including street battles last week which left two officers injured and 15 people arrested. Police fired tear gas to dispel demonstrators protesting the eviction of squatters; the protesters set fires to barricades and pelted police with rocks and firebombs.
"The plan by the government would destroy Christiania as we know it," said Thomas Ertman, a spokesman for Christiania residents.
The government's lawyer, Stig Groenbaek Jensen, did not return calls seeking comment Monday.
The last day of hearings at the Eastern High Court is set for Nov. 21, and a ruling is expected in January.