Giuseppe Serafino, 48, was arrested with British former Reuters journalist David Fox, who said he was using hashish to relieve stress caused by covering conflicts.
The pair are charged with using, possessing and transporting hashish after allegedly being caught in possession of small amounts of the drug in October.
Serafino, who ran a bar in the Bali resort area of Sanur, told the court he had been using hashish for nine years to help alleviate the symptoms of mouth cancer.
The Australian could have faced several years in jail for breaking Indonesia's tough anti-drugs laws.
But prosecutor I Gede Wiraguna Wiradarma recommended a lower sentence because Serafino was a first-time offender who had admitted his wrongdoing.
He called on the judges to "declare the defendant to be convincingly guilty of using drugs and sentence him to one year in prison, reduced by the period he has served in the detention".
The court is expected to hand down a verdict and sentence next week.
A one year jail term would likely see Serafino freed from jail in a matter of months as the sentence would include time already served in detention.
Prosecutors last week also recommended a one year sentence for Fox, who is being tried separately.
Judges do not have to follow prosecutors' sentence recommendations but they often do.
Authorities raided Serafino's house and found about seven grams (a quarter of an ounce) of hashish, after which Serafino said Fox had helped him buy the drugs.
Indonesia imposes the death penalty for drug-trafficking but Fox and Serafino will escape capital punishment as they face less serious charges.