Deyan Valentinov Deyanov, 29, attended the opening hearing of the trial at the provincial court in Santa Cruz de Tenerife on Spain's Canary Islands accompanied by his lawyer, a court spokeswoman said.
"We don't know how long the trial will last," she said.
Prosecutors are expected to ask for a sentence of 20 years in a mental asylum for Deyanov because he has chronic paranoid schizophrenia and the payment of 200,000 euros ($267,000) in compensation to the victim's family.
Deyanov is accused of stabbing and decapitating 60-year-old Jennifer Mills-Westley inside a Chinese general goods store in the tourist spot of Los Cristianos beach in Arona on the southern side of Tenerife in May 2011.
Police arrested him as he was struggling with a security guard and trying to escape, reportedly shouting "God is on Earth".
Witnesses said they saw a man leave the store with the woman's bloodied head in his hand, which he then threw on the pavement.
The victim's daughters, Sarah Mears and Sam Gomes, said returning to Tenerife for the trial would be "daunting" and asked for the media to respect their privacy.
"On Friday 13th May 2011 our lives changed irrevocably when we heard the shocking news that our much loved mother had been brutally murdered in Tenerife," they said in a joint statement.
"Now, nearly two years later we will come face to face with the man who took her life that day and relive the heart breaking details of the events leading up to her untimely death.
"Going back to Tenerife not only is a daunting prospect but it will reopen our wounds," the statement added.
Mills-Westley, originally from Norwich in eastern England, had been living in Tenerife after retiring from her job as a road safety officer. She had no relation to Deyanov.
Deyanov was released from a hospital in Tenerife where he received psychiatric treatment just three months before Mills-Westley was killed,
according to Spanish media reports.
In January 2011 he reportedy struck a security guard in the head with a rock, breaking several of his teeth.
Tenerife is home to around one million residents and is one of Spain's most popular tourist destinations.