An elderly woman swears she saw Lynette Dawson at a Royal parade in Sydney's CBD just over a year after she vanished from her home in 1982, a New South Wales court has heard.

Key points: A friend said she saw Lynette Dawson in Sydney's CBD a year after she vanished

A friend said she saw Lynette Dawson in Sydney's CBD a year after she vanished Ms Dawson seemed distressed at her daughter's birthday party, the court was told

Ms Dawson seemed distressed at her daughter's birthday party, the court was told Chris Dawson was described as a "placid, easy-going" man

Elva McBay, 101, is blind and has trouble hearing, but gave clear evidence at a committal hearing in Sydney today to see if Chris Dawson will stand trial for the alleged murder of his wife.

The 71-year-old has pleaded not guilty to killing Ms Dawson, saying he believes the mother of his two children ran away to join a cult.

A body has never been found.

Ms McBay first became friends with Paul Dawson, Chris Dawson's twin brother, while on a research course for the education department at Kogarah High School.

She eventually met Chris Dawson while he played rugby league for Newtown Jets and subsequently met his wife Lynette.

Chris Dawson denies murdering his wife Lynette. ( ABC News: Mazoe Ford )

In March 1983, Prince Charles and Princess Diana toured Australia and greeted fans when their procession stopped outside the Sydney Hospital on Macquarie Street.

Appearing via video link from Wyong Court, Ms McBay told the Downing Centre she remembered seeing a woman who looked like Ms Dawson that day.

"She was hurrying, she was running, she pushed in and ducked under the barricade ... I saw her face for a few seconds ... I turned to my husband and said 'I think that was Lyn Dawson'," she said.

But Ms McBay said her husband was unable to say whether it was Ms Dawson because it happened "so quickly".

Before her disappearance, Ms McBay told the court she had seen Ms Dawson in a "distressed state" at her daughter's fourth birthday party.

"She was distraught, she was crying, she was trembling — I had never seen her in such a state ever."

Chris Dawson has also been charged with one count of carnal knowledge relating to when he was a sports teacher at Cromer High School in 1980.

The court heard one of his students moved into the family home, which Ms McBay described as "very strange".

"She [Lynette] said 'I had the most dreadful row with [the girl]' this morning and she said she wanted to get rid of me'," Ms McBay told the court.

"I said 'you should get her out of the house before there is any more trouble'," she said.

Lynette and Chris Dawson met at a high school function. ( Supplied )

Defence barrister Philip Boulton SC asked Ms McBay whether she had ever witnessed any violent behaviour from Chris Dawson.

"No ... Chris was very quiet, placid, easy-going ... I never saw him bad-tempered ... he was an absolutely wonderful husband and he adored his wife Lyn," she told the court.

"They were one of the happiest families I had ever seen."

Ms McBay told the court she was shocked when someone told her Mr Dawson had been charged with his wife's murder just before Christmas in 2018.

Three more witnesses are expected to give evidence over the next few days.

Mr Dawson denies killing Ms Dawson, who was last seen at the couple's Bayview home on the northern beaches.

Mr Dawson was arrested at a relative's house on the Gold Coast before being extradited to Sydney, where he was formally charged with murder.