Andy Coulson, the ex-News of the World editor who became David Cameron's spin doctor, told a journalist investigating Calum Best to "do his phone", a court heard.
The instruction was given to the now-defunct tabloid's head of news Ian Edmondson, Prosecutor Andrew Edis QC told the Old Bailey, because they feared that Best, son of footballer George Best, would leak the story himself to a rival.
Edis said Best was believed to be the father of a child with a woman who was willing to sell the story to the tabloid for a large sum.
Downing Street's former director of communications and News Of The World editor Andy Coulson arrives at the Old Bailey
Coulson and Edmondson both deny charges which include conspiracy to intercept communications.
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"What does that mean?" Edis asked the jury.
Earlier, Edis told jurors that the News of the World used phone hacking as a "perfectly rational but entirely illegal" way of checking stories.
He said the prosecution was not suggesting every story was obtained, or investigated, by phone hacking, but that journalists used it as part of trying to stand a story up.
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 Lord Archer, cook Delia Smith, and model Abi Titmuss.
Edis said: "It was a perfectly rational but entirely illegal system."
The court heard that the newspaper was tipped off about an alleged affair between Clarke and his assistant Hannah Pawlby, and journalists watched her home and accessed her voicemails.
Although the rumour turned out to be untrue and the paper was "chasing shadows", Edis said it showed the system the tabloid would use.
Edis said phone hacking was sometimes used in a "random" way.
He told the jury that a hairdresser called Laura Rooney had her phone hacked, even though she had no connection with England striker Wayne Rooney.
He said: "Laura Rooney was phone-hacked because they thought she was related to Wayne Rooney, who was also phone-hacked. She wasn't, she was not related to Wayne Rooney and has nothing to do with him.
"That just shows the slightly random way that this was used. She is a hairdresser, she doesn't know Wayne Rooney."
The prosecutor told the jury that much of the hacking carried out by private investigator Glenn Mulcaire was tasked by former news editor Ian Edmondson, and said: "The prosecution say frankly that the evidence against Mr Ian Edmondson is absolutely overwhelming."
Coulson is also facing two allegations that he conspired with former royal editor Clive Goodman to commit misconduct in public office. It is claimed that Goodman paid palace policemen for copies of royal phone directories - allegedly authorised by Coulson - to get information on members of the Royal Family.
In January 2002, the court heard that Goodman emailed Coulson to say: "Andy - one of our royal policemen (St James Palace) has obtained the brand new green book, the telephone directory with all the home numbers of the royal family and their household staff.
"Incredibly useful and he'll be extremely handy in the Peat Affair tale. The standard price is GBP1,000."
This referred to a false allegation that former aide to the Prince of Wales Sir Michael Peat had an affair.
In the version of the message found on Goodman's computer, but apparently not received by Coulson, another paragraph said: "I think that we should have the book and the goodwill that goes with it but I am keen to avoid Round Two with the Man Ed (managing editor Stuart Kuttner).
"I'm not criticising Stuart at all, but 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."
Coulson replied to the shorter message, questioning why he had recently signed off on a payment of £750 for another copy of the directory.
Goodman answered: "This is the harder to get one which has the Queen's direct lines to her family in it."
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, adding: "The investigation has never identified the policeman responsible for this."
He said the conversation and payment was the "clearest possible evidence" of conspiracy to commit misconduct in a public office and was linked to phone hacking.
He said that on the same day the Green Book was bought, which included an address and landlines but no mobile number for Sir Michael, Mulcaire was tasked with investigating him. A mobile number was later handwritten on to the book, the court heard.
He said: "Glenn carried on with his investigation and if that's right this book is directly useful for phone hacking, and in fact used for phone hacking, because Sir Michael Peat is targeted on the very same day the book is paid for."