Melbourne Magistrates Court heard that in the months after Karen Rae's disappearance in April 2015, Tony John Smith discussed her death with two women, admitting his alleged crime to one and using Ms Rae's name when threatening the other.

Mr Smith, 50, was charged with murder after Ms Rae's remains were found beside the Frankston Freeway in December last year.

The 48-year-old mother of four was last seen leaving her home in Adib Court in Frankston North about 7pm on April 15, 2015.

The court heard on Tuesday Mr Smith told an associate, April Kinna, while they were on a bus that he killed Ms Rae, and later moved her arms and face.

"He said he killed her and then moved her arms across her body in a certain way and put a smile on her face," Ms Kinna told the court.

Earlier, Michelle Terry alleged Mr Smith assaulted her in the months after Ms Rae's disappearance, and threatened to put her in his car boot.

He said "I am going to do to you what I did to Karen Rae", Ms Terry said.

Ms Terry said Mr Smith apologised to her over the alleged assault months later, but again issued a threat when she told him police had asked her about Ms Rae.

"He said if I wasn't careful that I would end up the same way that Karen was ... in a threatening manner," Ms Terry said.

She said she did not know who Ms Rae was when police officers questioned her in November 2015, but several days later recalled the alleged assault when Mr Smith referred to Ms Rae.

Ms Kinna and Ms Terry were both granted protection from self-incrimination when questioned about their drug use on Tuesday.

An off-duty Protective Services Officer told the court she saw Mr Smith, Ms Rae and three other people leave the Seaford Hotel on the night of April 14, 2015, the night before she went missing.

Ms Rae appeared drug-affected when she left the hotel, PSO Fiona Hogg said.

Ms Hogg said she played pokies at the hotel when off duty and knew Mr Smith well enough to say hello and engage in small talk, but did not know him by name.

She said she found out what he was called when she realised Mr Smith was the subject of an internal notice circulated by police, asking officers and PSOs to keep a lookout for him.

On July 4, 2015, Ms Hogg said, Mr Smith was rambling and appeared drug-affected at the hotel and claimed he was constantly being harassed by police.

Under cross-examination she admitted she was "fishing" for information when she lied to Mr Smith claiming she once devised a plan to get rid of an old boyfriend.

The court was not told how Mr Smith responded to Ms Hogg's remark.

The hearing, which will determine whether he stands trial, continues.