Always — but you're writing for the hundreds of future readers, not the one reviewer. A calm, specific, non-defensive reply ('here's what happened, here's what we did') routinely impresses prospects more than a wall of five-stars.
The format that works: acknowledge, state your side briefly and factually, take it offline ('call me directly'). Never argue details publicly, never get personal, never write angry — the reply outlives the dispute.
For plainly fake or policy-violating reviews, reply once for the record and report through GBP; removal is slow and uncertain, which is one more reason steady real reviews matter — they dilute anything unfair.