The Victoria Cross recipient is suing The Age, The Sydney Morning Herald and The Canberra Times, for defamation - denying their reports that he committed war crimes and murders in Afghanistan between 2006 and 2012.
The third Australian witness called by the newspapers - who have mounted a truth defence - on Friday said a 2012 conversation he had with Mr Roberts-Smith "shocked me to my core".
It followed their final mission in Afghanistan where the witness codenamed Person 16 said he detained two men in a Toyota Hilux, one being a terrified adolescent.
About 20 minutes after Mr Roberts-Smith's patrol collected the men, the trained medic heard him make a radio call that two enemies had been killed in action.
A day or two later he says he crossed paths with his fellow SAS soldier in the barracks.
"What happened to that young fella who was shaking like a leaf?" he said he asked Mr Roberts-Smith.
"And (he said) 'I shot that c*** in the head.
""Person 15 told me not to kill anyone on the last job so I pulled out my nine mill and shot the c*** in the side of the head, I blew his brains out.
"'It was the most beautiful thing I've ever seen.'"
Mr Roberts-Smith's barrister Arthur Moses SC suggested he "imagined" the entire conversation.
"That is absolutely false. This conversation 100 per cent happened."
He also denied media reports influenced his memory, after meeting with investigative journalist Nick McKenzie.
Mr Roberts-Smith has strenuously denied all accusations of wrongdoing, and says he acted within the moral and legal rules of military engagement during his six tours of Afghanistan between 2006 and 2012.
Mr Moses said Person 16 had made inconsistent statements that he had seen Mr Roberts-Smith bully his colleagues, after telling the court that he had never witnessed such behaviour.
"I meant physical bullying," he said.
"You cannot delineate between the fact of what happened and what you think happened," Mr Moses said.
But Person 16 insisted his memory had not been influenced by the traumas of war.
The trial continues on Monday before Justice Anthony Besanko after Friday's session ended in closed court.
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