Nicolaides wrote a novel four years ago, which contained a brief passage referring to an unnamed crown prince. It sold just seven copies.
He admitted the charge of insulting the royal family, but said he was unaware he was committing an offence.
Thailand's monarchy is sheltered from public debate by some of the world's most stringent "lese-majeste" laws.
Harry Nicolaides was arrested as he was leaving the country last August.
His self-published book, called Verisimilitude, was hardly well-received; in fact the only copy which is still known to exist sits on the shelf of the Thai National Library, freely available to the public.
Shackled in leg irons, and wearing standard-issue prison pyjamas, Nicolaides pleaded guilty to the charges against him at Bangkok's Criminal Court on Monday.
He was quickly found guilty, with a judge telling the court: "He has written a book that slandered the king, the crown prince and Thailand and the monarchy."
The court initially sentenced him to six years in jail, but reduced the term because of his guilty plea.
Before the trial Nicolaides had seemed stunned by what was happening to him, describing it is like a ''bad dream''.
But he is just one of a growing number of people being investigated and charged under Thailand's draconian "lese-majeste" law, as the police and army try to suppress what they fear is a rising tide of anti-monarchy sentiment.
More than 3,000 websites have now been blocked, and one political activist was jailed for six years in November for an anti-monarchy speech she made just a stone's throw from the old royal palace last July.
Several other people are now awaiting trial.
As a repentant foreigner, Harry Nicolaides does at least have a good chance of being pardoned by the king, according to the BBC correspondent in Bangkok, Jonathan Head.
The king did the same for a Swiss man given a 10-year sentence two years ago for defacing his portrait.
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