The prince suffered severe mental and physical shock after being locked up in London's high-security Belmarsh prison, an Old Bailey judge was told.
He suffered from "adjustment disorder" and was unable to eat, sleep or instruct his legal team, according to a forensic psychiatrist.
Saud Abdulaziz bin Nasser al Saud had also fallen prey to other prisoners demanding money after one of his files was marked VIP.
Barrister Michael Wolkind QC - who has since been replaced by John Kelsey-Fry QC - told a pre-trial bail hearing that Saud was "a bewildered man" in prison, close to a breakdown and possibly suicidal.
Dr Philip Joseph said he had seen Saud twice and there had been a deterioration in his mental state.
"He won't be fit to stand trial," said Dr Joseph. "He is not fit at the moment to instruct his solicitors.
"He has been prescribed sleeping pills and valium, but he is still not sleeping.
"He is a very sensitive person who has been cocooned in his upbringing. He has experienced very little in his life.
"Then to be put into this alien situation, he starts to suffer from adjustment disorder. Today, he is more distressed and more unable to cope in the prison.
"He is obviously a member of a royal family and he is naturally reserved."
Dr Joseph said Saud was not shaving at the time - fearful that he might harm himself with the blade.
The prince had been disturbed by seeing a fight in jail, inmates were making demands for money and there were fears his photo would be sold to the press.
"He is dealing with it by spending virtually the whole time in his cell lying on his bed," the doctor said.
Michael Wolkind, defending, asked a judge to let the prince out so that he could live in a large London house where he would "effectively be under house arrest".
A private security firm run on military lines and favoured by former prime minister Baroness Thatcher would guard him day and night and report any sign of escape.
He said the prince would be guarded by people with police and military backgrounds, even to Friday prayers.
The £1 million security package would include nine CCTV cameras and seven guards at any one time.
The luxury arrangements were not required because of any privilege, said Mr Wolkind, but because of his client's mental and physical health.
The bail application was turned down after objections from the prosecution which said Saud was in a position to flee the country - and with no prospect of being returned as there is no extradition treaty with Saudi Arabia.
Judge Brian Barker, the Common Serjeant of London, said: "I accept that the package offered is exceptional in every way. It is effectively the most superior type of house arrest as is possible to imagine."
He remanded him into custody saying the temptation to abscond would be too much.
Saud later lost a High Court challenge to the bail decision.Reuse content