The William Blount High School students, Derek Barr, Chris Nicole White and Roger Craig White, said they were threatened with suspension if they refused to cover or turn inside out shirts bearing the Confederate emblem.
The students complied but they and their parents sued, seeking a preliminary injunction to lift the ban.
"Out of all the T-shirts that are worn to school every day, a student cannot express pride in his Southern heritage at William Blount High School," said attorney Kirk Lyons of the Southern Legal Resource Center, a North Carolina organization that supports the lawsuit.
The lawsuit names Principal Steve Lafon, Schools Director Alvin Hord and the Blount County School Board.
"Our policy is that any type of clothing which has graphics, words or pictures that are distracting to the learning process of the school ... are not supposed to be worn," schools spokeswoman Alisa Teffeteller said.
The policy has been on the books for several years, but it had not been enforced until last April when the sheriff's office had to lock down the school amid rising tensions and threats to black students.
The lawsuit claims other students have worn clothing depicting "foreign national flags, Malcolm X symbols and political slogans" without repercussions.