He told the Old Bailey, London, he had dozens of sources during his time as the paper's royal editor, only some of whom he paid.
The 56-year-old, of Surrey, denies conspiring to commit misconduct in public office.
Asked by his lawyer David Spens, QC, about the nature of his contacts, Goodman said: "Some worked for the Royal Family, some were friends of the Royal Family, indeed some were members of the Royal Family."
He said he created two false identities that he used to pay sources for tips, in particular someone he thought was a freelance journalist, and a newspaper executive.
Asked if the system of using false names to arrange payments was known by the management at the paper , Goodman said: "Yes, it was."
Asked how long it had been going on, he said: "It was there when I arrived in 1986 and went on through all the way until I left in 2006."
All seven defendants in the case, including former editors Rebekah Brooks and Andy Coulson, deny the charges against them.
Goodman was read an email he sent to Mr Coulson, then editor, claiming he needed £1000 to pay a Kensington Palace police officer for a "green book" - a royal phone directory. In the email he said the book would be "extremely useful" and if the police officer was caught, he could "end up with criminal charges, as could we".
Asked by Mr Spens if the source was in fact a police officer, Goodman denied it, saying it was probably Mr Farrish, one of the false names he used for a contact.
Goodman also admitted yesterday his phone hacking activities went beyond what he had previously pleaded guilty to.
In 2006, he admitted hacking into the voicemails of three members of the royal household between November 2005 and August 2006.
But yesterday he admitted he hacked the phones of three people earlier in 2005, including an equerry who was not on the original charges.
The trial continues.