Richard Wealthall, former head of St Clement's high, Terrington St Clement, Norfolk, is accused of nepotism, promoting his mistress and bullying staff.
England's General Teaching Council heard details of the alleged affair between the 60-year-old and Tessa Mountain, head of English, from staff at the 580-pupil school. One saw Mr Wealthall embracing Mrs Mountain and holding hands with her at a railway station. He denied holding hands but admitted the embrace. "We met each other, and as friends do, I believe I put my arm around her shoulder and said 'Hello'. Down the platform was another member of staff," he said.
"Mrs Mountain is from the North-east of England. People in the North-east greet each other in a different way from the rest of us."
Mr Wealthall admitted holidaying with Mrs Mountain in South Africa in 2002, but said he had discussed it with her family and that they had separate bedrooms.
An earlier disciplinary hearing heard that he had appointed Mrs Mountain as head of English without advertising the post or advising governors, even though she had no teaching management experience.
Yvonne Srodzinski, former deputy head, told the earlier hearing that she was concerned that Mrs Mountain was exploiting her position. "I got the impression he was getting carried away with the affair," she said.
Mr Wealthall was presented with an award by the Prime Minister in 2000, after the proportion of GCSE grades A*-C at St Clement's jumped from 27 per cent in 1996 to 58 per cent in 1999.
In all he is facing seven allegations, including appointing Mrs Mountain's husband, Carl, a former HGV driver, to a junior information technology role on an abnormally large salary, even though he was not qualified for the position, in September 2002.
Mrs Mountain's daughter, Emma, was said to have been given a favourable extension to her contract, despite concerns about her attendance, punctuality and time-keeping.
Mr Wealthall is also alleged to have extended the contract of his daughter, Katherine Leat, and appointed her as head of drama without proper consultation, and to have recruited her husband, Stephen, as PE instructor without assessing his ability to do the job.
The earlier disciplinary hearing was told Mr Wealthall's former wife, Susan, who also worked at the school, was able to cherry-pick the lessons she wanted to teach.
Mr Wealthall denied charges of nepotism during this month's hearing. "Most of those appointments were made by other people. I distance myself specifically from those appointments," he said.
His ex-wife said: "Mr Wealthall has no reason to show me any favour. In fact quite the reverse. Mr Wealthall and I behaved professionally whether we were married, separated or divorced."
The Mountains have also split up. Carl Mountain told the hearing: "At no time was there any improper relationship between Mr Wealthall and my wife."
Mr Wealthall denied any inappropriate relationship and said: "I have never contested I had a close relationship which remains between me and the Mountain family."
Evidence of alleged bullying was provided by David Harwood, former chairman of the school's governing body. "Members of staff were reduced to tears during meetings," he said.
The hearing was adjourned until January.