Ed Sheeran and Princess Beatrice made headlines around the world last year when the singer claimed his face was slashed during a mock-knighting by the princess.
But James Blunt, who was present at the party, has revealed the whole story was a lie.
"Ed was drunk, messing around, and he cut himself. We made a fancy story up; people fell for it. It was very embarrassing," he told ShortList.
Blunt joked that a "desperate" Sheeran made up the story to try and sell records and said he was surprised that people fell for it.
The story first surfaced in November last year, when Sheeran posed with fans with a noticeable cut on his face.
Soon after, reports circulated saying Sheeran had been cut with a ceremonial sword during a dinner party at Royal Lodge, the York family residence.
It was reported Sheeran was rushed to A&E where he received stitches for the gash.
However, Buckingham Palace refused to comment on the story.
Blunt revealed Sheeran cut himself but didn't explain the circumstances behind the injury.