Ian Strachan, 30, and Sean McGuigan, 40, are being held in custody until they appear at London's Central Criminal Court on Dec. 20 on blackmail charges, prosecutors said.
The allegations became public over the weekend with a report in The Sunday Times. Buckingham Palace has refused to comment on the report, saying it had nothing to say about what it described as "a police matter."
London police have only said that two men appeared in court Sept. 13 and were charged with blackmail. The appearance was held in private and a court order has banned identifying the victim or any potential witnesses in the case.
The preliminary hearing on Dec. 20 will allow a judge and lawyers to discuss future dates in the court case, prosecutors said.
The Sunday Times said the two suspects had approached the unidentified royal family member in August and demanded 50,000 pounds (US$100,000; €72,000) not to publicize a video allegedly showing the royal engaged in a sex act. The blackmailers also claimed to have evidence suggesting the royal had supplied an aide with an envelope containing cocaine, the newspaper said.
The paper said it could not identify the royal family member for legal reasons.
The British Broadcasting Corp., without citing sources, said the blackmail target was not a senior member of the royal family.
The Sunday Times said the blackmailers' target contacted police and the two suspects were arrested at a London hotel Sept. 11 during an undercover police operation.
An undercover police detective posing as a royal aide reportedly contacted the alleged blackmailers and arranged the meeting at the London Hilton on Park Lane.
Strachan is a property developer in London who grew up in a wealthy area of Aberdeen, Scotland, where he attended a private school and ran a clothes shop before moving to Britain's capital.
Giovanni di Stefano, Strachan's legal adviser, said the suspect owns a home in the wealthy London area of Chelsea and regularly socialized with people on the fringes of Britain's royal family.
No background information was immediately available about McGuigan.