One of the men involved also admitted recording a video of the killing, which was shared online with other sympathisers of the terror group.
The bodies of Louisa Vesterager Jespersen, 24, from Denmark, and Maren Ueland, 28, from Norway were found in December in the popular hiking area south of Marrakesh.
They were on an unguided trip and camping close to North Africa’s highest mountain, Mount Toubkal.
At Thursday’s court hearing in Sale, near Moroccan capital Rabat, Abdessamad Ejjoud and Youness Ouziyad admitted the murders, while Rachid Afatti said he filmed the killing.
“After failing to join the Islamic State, we decided to do jihad at home,” said Ejjoud, a 33-year-old carpenter and father of two from Marrakesh.
Ejjoud admitted that he had beheaded one of the women: “I regret what happened and I am still trying to grasp it,” he said.
The three men pledged allegiance to IS in a video before the murders, but authorities said they were “lone wolves” who were not instructed by the terror group.
They were arrested at a bus station in Marrakesh four days after the killing and prosecutors claim they were on their way to the Algerian border to try to join terror groups.
Twenty-one others, alleged to have links to the trio, are also on trial.
A lawyer for the family of Louisa Vesterager Jespersen said they wanted compensation as some of those arrested had previously been jailed on terror charges or had attended schools preaching radical ideologies.
The three men involved in the murders face the death penalty.
Miss Jespersen and Miss Ueland, who had both been studying outdoor activities and tourism at the University of Southeastern Norway, arrived in Morocco on 9 December for what was supposed to be a month-long holiday.
Their bodies were found just eight days later.
Tourism accounts for 10% of Morocco’s national income and the country has generally been safe from jihadist attacks since a 2011 bombing in Marrakesh killed 17 people, most of them European tourists.
