Codenamed Person 14, the still-serving SAS soldier says he saw the Victorian Cross recipient walk up to an interpreter and say "tell him to shoot him (the detainee) or I will" towards the end of the mission in Khaz Uruzgan in Afghanistan in 2012.
After some discussion, one local soldier stepped forward and unloaded seven to 10 rounds into the detained man, Person 14 says.
That account is set to be a subject of cross-examination on Tuesday, the witness's third day of testimony before the Federal Court.
Mr Roberts-Smith, who is among Australia's most highly decorated living soldiers, is suing three newspapers over their reports identifying him as being involved in war crimes between 2006 and 2012.
The war hero has denied committing any war crimes or murders in Afghanistan, rubbishing some of the media outlets' claims as "ridiculous".
Person 14, who was a corporal during the 2012 mission, also alleged seeing the infamous shooting death of an Afghan man with a prosthetic leg by an Australian SAS soldier in 2009.
He was cross-examined about that account on Monday, backing away from a suggestion that the Australian soldier was definitely Mr Roberts-Smith.
While the gun model Person 14 heard used in the shooting was the same as one he saw soon after carried by Mr Roberts-Smith, there were "potentially" other Minimis carried by members of the war hero's patrol of six people, the witness testified.
Mr Roberts-Smith has flatly denied shooting a disabled Afghan man as the victim lay on the ground.
Rather, the now-retired SAS corporal says he spotted and engaged an insurgent carrying a rifle, firing two fatal shots.
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