Hours later, the American Civil Liberties Union said it would not appeal the ruling to the U.S. Supreme Court, removing the final legal roadblock to the election, now just two weeks away.
The 11-member panel of the 9th U.S. Circuit Court of Appeals overturned a decision issued last week by three of the most liberal judges on the court.
The three judges had postponed the election until perhaps March to give six counties more time to switch over to electronic voting systems from the error-prone punch-card ballots that caused the recount mess in Florida during the 2000 presidential election. The panel repeatedly cited the Supreme Court's Bush v. Gore decision that effectively decided the 2000 election.
The more conservative 11-judge panel acknowledged that allowing the election to go forward now could cause some votes to go uncounted. But the panel said that the candidates, the voters and the state have already spent a huge amount of time and money on the assumption the election would be held Oct. 7.
The decision provided some much-needed clarity in a campaign marked by confusion and chaos.
"Many Californians have been confused," said California Secretary of State Kevin Shelley. "My message as the state's chief elections officer is the confusion is over."
But CBSNews.com Legal Analyst Andrew Cohen warns that while the dispute is over for now, there could be more legal challenges to the recall down the road.
"The 9th Circuit certainly left open the possibility of a post-election claim should there be problems at the voting booths, and so the plaintiffs, who have lost this round, may find themselves back in court in just a few weeks," Cohen says.
The target of the recall says he's ready for an election now just 14 days away.
"The conventional wisdom is that it would hurt me," said Davis of the decision not to postpone the election. "But the conventional wisdom has been wrong in almost every instance."
Attention now turns to Wednesday night's defining debate – the first and only time Republican Arnold Schwarzenegger will share a stage with the other four major candidates. It's an appearance that could make or break his campaign as the latest polls show a very tight race, reports CBS News Correspondent Jerry Bowen.
"It's the Super Bowl of debates," Schwarzenegger said.
Up until now, the action star has been an empty chair, accused of ducking tough questions and unwilling to engage in the rough give-and-take of a candidate's forum. Even this debate is one where the main questions have been revealed in advance, a format other candidates have criticized.
"When you're in the middle of a crisis, there's no script to follow," says Lt. Gov. Cruz Bustamante, the leading Democratic contender.
And in yet another bizarre twist, Rep. Daryl Issa, the millionaire Republican who bankrolled the recall drive in the first place is now telling voters to reject the recall.
If either Schwarzenegger or Republican state Sen. Tom McClintock doesn't drop out, Issa fears a split GOP vote will only elect another Democrat, while a single Republican candidate can win.
"I'm asking both candidates to do the arithmetic and make their decision by the end of the week," Issa said.
That ups the pressure on the conservative McClintock, who will certainly stay in through Wednesday night and what may be the most watched gubernatorial debate in history.