Then News of the World editor Andy Coulson told a senior journalist investigating an exclusive story on television celebrity Calum Best to "do his phone", a court has heard.
Mr Coulson emailed the instruction to his then head of news, Ian Edmondson, prosecutor Andrew Edis QC said.
They feared a rival paper may get the story about the son of George Best and a woman, Mr Edis told the Old Bailey.
Mr Coulson and Mr Edmondson deny conspiracy to intercept communications.
Mr Edis said that in 2006, the now-closed News of the World (NoW) was investigating Calum Best, who was thought to be the father of a child with a woman who was willing to sell the story.
The NoW wanted the story as an exclusive and were paying the woman a lot of money, but were worried that Mr Best - whose late father George used to play for Manchester United - might "leak" the story to their competition, the court heard.
During an email discussion on the matter, Mr Edmondson said Calum Best was "bragging I have close mates inside NotW".
Mr Coulson later sent Mr Edmondson a message which read: "Do his phone."
"What does that mean?" Mr Edis asked the jury.
He added the evidence against Mr Edmondson was "overwhelming".Celebrity targets
The court was also told that journalists at the paper used hacking as a "perfectly rational but entirely illegal" way of standing up stories.
Reporters would receive a tip-off about a story, and then use surveillance and phone hacking to check whether it was true before confronting those involved.
Alleged targets of the phone hacking included former Home Secretary Charles Clarke, actors Jude Law and Sienna Miller, and former aide to Prince William and Prince Harry, Jamie Lowther-Pinkerton, the jury heard. The list also included former politician Lord Archer, cook Delia Smith, and model Abi Titmuss.
The court heard the newspaper had been tipped off about a rumoured affair - which was untrue - between Mr Clarke and his assistant, Hannah Pawlby, and journalists watched her home and accessed her voicemails.
Mr Edis said this demonstrated how the NoW had used three ways to investigate stories - phone hacking, surveillance, and confrontation - and in this case Mr Coulson had approached their target.
"The editor is personally involved in the third. Obviously he knows about the second, surveillance - he must do. What about the first? Does he know about phone hacking? He says he doesn't, we say 'Oh yes, he did'," he argued.
Mr Edis also told the jury that a hairdresser called Laura Rooney had had her phone hacked, even though she had no connection with England striker Wayne Rooney. They had thought she was related to him, Mr Edis said.
He said phone hacking had uncovered a claim that Prince Harry had broken rules at military training academy Sandhurst by asking an aide for help with an essay.
Mr Edis said the story in the NoW in 2005 came from a voicemail that was illegally accessed by private investigator Glenn Mulcaire on behalf of the newspaper's then royal editor Clive Goodman.Royal directories
Allegations of inappropriate payments involving Mr Coulson and Goodman, who was convicted of phone hacking in 2007, were also outlined by Mr Edis.
Police found 15 royal-related directories at Goodman's home, two of which the prosecution maintained were illegally bought from royal protection officers.
In 2003, Goodman emailed Mr Coulson to ask if he could pay a royal policeman £1,000 for another directory, saying: "These people will not be paid in anything other than cash because if they're discovered selling stuff to us they end up on criminal charges, as could we."
Mr Edis said that, as a result of that conversation, a cash payment of £1,000 was made to a David Farish, which turned out to be a false name.
"The investigation has never identified the policeman responsible for this," Mr Edis told the court.
But he added the conversation and payment were the "clearest possible evidence" of conspiracy to commit misconduct in a public office - a charge that Mr Coulson denies - and were linked to phone hacking.
The court heard the telephone directories were needed to assist targeting Sir Michael Peat, former principal private secretary to the Prince of Wales. The NoW's private investigator targeted him on the day the book was purchased.
The court heard that in June 2005, Goodman sent Mr Coulson an email saying: "One of our palace cops has got hold of a rare and just printed Palace staff phone book.
"Every job, every name, every number. We usually pay £1,000 for these. It's a very risky document for him to nick. Ok to put the credit through?"
Mr Edis said Mr Coulson did not reply to this email, but after Goodman followed up asking again for authorisation, the editor replied: "Fine."
The prosecutor told the jury that the use of the word "nick" would have "told Mr Coulson precisely that he was paying a policeman to commit a crime".
Mr Coulson and Mr Edmondson are among eight defendants - including former Sun and NoW editor Rebekah Brooks - who deny a range of charges at the Old Bailey.
The court heard on Wednesday that three former News of the World journalists, who are not on trial, and Mulcaire had pleaded guilty to phone-hacking charges.
The trial continues.