The leak happened at the Worthy Farm site in Somerset in June 2014 and damaged water quality and killed fish.
Founder Michael Eavis, who was at Yeovil Magistrates' Court, said the sewage was in a £100,000 slurry tank.
The Glastonbury Festival is one of the UK's biggest music events, with some 175,000 people attending each year.
During the hearing, the judge was told that 42 fish were killed by the sewage after a "large quantity" of sewage filtered into Whitelake River.
Sensors in the stream alerted the Environment Agency to increased ammonia levels.
The court was told fish - including protected brown trout - died as a result.
Glastonbury Festival 2014 admitted the single charge against it.
Prosecuting, Kieran Martyn said: "The impact was extensive... It extended for at least 4km downstream."
Representing the festival, Kerry Gwyther, said the leak in the tank was a "freak incident" and not as serious as was being made out.
"We don't accept that it was a major incident as described by the agency," he said.
"The leak period was eight hours. We do accept that there was a significant effect on water quality and the fish health.
"Significant costs were not incurred in terms of a clean up."
The case has now been adjourned while both parties put together more detailed background reports.
Outside court Michael Eavis said: "Of course, I'm exceedingly sorry for what's happened.
"We had a problem obviously - there were 200,000 people and we were storing slurry.
"It was a tank for holding farm slurry, but on this occasion we were using it for the festival sewage and it was starting to leak.
"It was a brand new build, it cost me £100,000, so that's my defence."
Another issue yet to be decided is the seriousness of the breach.
If it is a category one offence, the festival would be in line for a fine of between £55,000 to £300,000 or, if it is deemed a category two the fine would be £20,000.
The defence team told the court any fine should be in line with the company's finances. They said the festival's net profit was £84,000 a year before tax. But the prosecution said turnover was about £37m.
Mr Gwyther said the site donated £2m in 2015 to a number of charities, including the Somerset Wildlife Trust and WaterAid.
District Judge David Taylor said there was "significant differences between one account to another" and said there would be a four-day hearing to decide the facts before sentencing.
Kasabian, Dolly Parton and Metallica headlined the festival in 2014.
The organisers of the Glastonbury Festival have admitted allowing human sewage to leak from a tank and pollute a stream.