He told the phone hacking trial that this source had tipped him off “from inside the palace” about an intruder at Prince William’s 21st birthday party – which made a front-page story in the tabloid in 2003.
Under cross-examination from Clive Goodman’s lawyer, David Spens QC, Mr Coulson told the Old Bailey he had at least two sources for royal stories.
One, whom he did not name, was female and sometimes paid in cash – via a third party.
Asked about her payments, Mr Coulson told the Old Bailey: “I’m pretty sure she was paid both in cash and on other occasions through the system.”
Mr Justice Saunders asked: “In her own name?” “No,” replied the journalist, deputy editor between 2000 and 2003 and editor for the next four years. “She gave me a different name, who would receive money on her behalf.”
He said he gave his employers, News International, an address for the source, but was not sure if it was a false address, because his source may have been sharing the property with the third party.
Mr Coulson agreed with Mr Spens that his other source was Mark Bolland, deputy private secretary to the Prince Charles between 1997 and 2002.
Mr Bolland, the first director of the Press Complaints Commission, had improved as a source after he left the Royal Household, he told the Old Bailey.
Mr Spens suggested that Mr Coulson had given Mr Goodman a “storyline” that Prince Charles’s Principal Private Scretary, Sir Michael Peat was having an affair – and that the tip “had come from Mark Bolland.”
Mr Colson said he could not remember whether that was so.
In response to Mr Coulson’s earlier evidence denigrating Mr Goodman’s work record, Mr Spens suggested that his client had been a “loyal NoW stalwart” and read out letters from NoW executives regularly praising him for exclusives.
The lawyer suggested that two of the tabloid’s executives were bullies, which Mr Coulson rejected. “No, I don’t accept that, he said, when asked if one executive was “particularly aggressive.”
Challenged whether another journalist was “bullying and domineering,” Mr Coulson replied: “Not in my experience.”
Mr Coulson, who become Prime Minister David Cameron’s director of communications, denies conspiring to hack phones between 2000 and 2006. He and Mr Goodman are jointly charged with – and deny – conspiring to commit misconduct in a public office.