The 28-year old faces four years in prison if convicted on one count of missing movement and two counts of conduct unbecoming an officer for refusing to go with his unit, the 3rd Brigade, 2nd Infantry Division.
He refused conscientious-objector status, saying he would serve in Afghanistan but not Iraq.
Anti-war activists consider Watada a hero and his supporters say he is the first army officer to publicly refuse to deploy to Iraq.
"As the order to take part in an illegal act is ultimately unlawful as well, I must as an officer of honour and integrity refuse that order"
First Lieutenant Ehren Watada
Watada had hoped to make his case against the war in court, but John Head, the military judge presiding over the case, denied the defence's request to argue the legality of the war, saying the question cannot be answered in a military court.
Head also denied a list of possible defence witnesses and limited what the defence could ask potential members of the military panel that will determine Watada's fate.
Eric Seitz, Watada's lawyer, said: "It has become clear now that there is nothing for us to say in this courtroom."
Seitz called the decisions "comical" and "atrocious".
Watada's supporters and opponents gathered outside the gates of the army base, waving banners and shouting.
The two charges of conduct unbecoming an officer stem from public comments Watada made encouraging soldiers "to throw down their weapons" to resist an authoritarian government at home.
Defence lawyers had intended to argue that Watada's comments were free speech protected under the US constitution but Head rejected this.
|Watada is the first army officer to publicly|
refuse to deploy to Iraq [AFP]
In a video statement in June, Watada said: "As the order to take part in an illegal act is ultimately unlawful as well, I must as an officer of honour and integrity refuse that order."
Despite having already been charged, he spoke out again in August, at a Veterans for Peace rally in Seattle.
Watada said: "Though the American soldier wants to do right, the illegitimacy of the occupation itself, the policies of this administration, and the rules of engagement of desperate field commanders will ultimately force them to be party to war crime."
Army prosecutors say Watada's behaviour was dangerous to "the mission" and morale of other soldiers.
Captain Dan Kuecker said at one hearing: "He betrayed his fellow soldiers who are now serving in Iraq."
Colonel Dan Baggio, a US army spokesperson, said: "[It] sets a bad example for the soldiers underneath that person. It sets a bad precedent. At that point in time you've lost good order and discipline. You can't have that in a military organisation."