The mother was ruled legally unfit to keep custody of her children because of spending "excessive time" outside the family home to fulfil her tobacco habit.
Her behaviour was seen by the court as "odious" and socially inappropriate, and her ability to raise her children with the right social and moral values was questioned.
"It is bad taste and improper social behaviour for a mother to be smoking shisha," the family court ruled.
"The mother therefore loses custody over her children as they will not be safe with her."
The court affirmed the legality of taking children out of a mother's custody because of shisha-smoking, adding that the negative impact of smoking on a mother's health will affect her ability to look after her children's wellbeing.
Critics of the verdict argued that the court should proceed to apply the ruling across all cases regardless of the defendant's gender, adding that the charge of negligence should apply to men, too, if they were also heavy smokers.
A report released by the executive office of the Gulf health ministries last year found that Kuwait ranked third among the region's top smoking nations.
The shisha, or water-pipe, is a popular instrument for smoking flavoured tobacco in the Middle East and South-Asia, where it is known as a hookah.
It is offered across Kuwait's restaurants and cafes, frequented by both men and women alike.
However, despite being widely smoked across the region it still remains a taboo in some Gulf states, with some conservative clerics strongly opposing the practice.
Women smoking sheesha is also frowned on by older and more conservative sections of Kuwaiti society, and there have been moves to restrict sheesha smoking and cafes in some Gulf states.