Inclusive D^{*+-} production in two-photon collisions is studied with the L3 detector at LEP, using 683 pb^{-1} of data collected at centre-of-mass energies from 183 to 208 GeV. Differential cross sections are determined as functions of the transverse momentum and pseudorapidity of the D^{*+-} mesons in the kinematic region 1 GeV < P_T < 12 GeV and |eta| < 1.4. The cross sections sigma(e^+e^- -> e^+e^-D^{*+-}X) in this kinematical region is measured and the sigma(e^+e^- -> e^+e^- cc{bar}X) cross section is derived. The measurements are compared with next-to-leading order perturbative QCD calculations.