His testimony was given under oath, and Morgan could be subject to criminal proceedings if he is found to have violated any British laws.
Morgan's defense Tuesday was part denial, part apology and a healthy helping of "I don't recall."
A key line of questioning centered on the comments Morgan made in a 2006 article he wrote for the Daily Mail tabloid. In it, Morgan said he was played a phone message left by the former Beatle on Mills' answering machine, describing it in detail and noting that McCartney "even sang 'We Can Work It Out' into the answer phone."
Mills, who went on to divorce McCartney, has charged there was no way Morgan could have obtained the message honestly an allegation that could prove embarrassing to CNN, which brought the 46-year-old journalist on board in January to replace Larry King.
Morgan stubbornly refused Tuesday to go into any detail about the message, saying: "I'm not going to discuss where I heard it or who played it to me."
Pressed by inquiry chief Lord Justice Brian Leveson about whether he could provide any evidence to substantiate that he had obtained the message legally, Morgan said he could not.
"I can't start any trail that leads to the identification of a source," he said.
Before his U.S. television career, Morgan ran two British tabloids Murdoch's now-shuttered News of the World, between 1994 and 1995, then the rival Daily Mirror, which is not connected to the Murdoch empire, where he stayed for nearly a decade.
Much of Tuesday's inquiry focused on the time Morgan spent at the latter, which could revive earlier suggestions that hacking was not confined to journalists working for News International, the British subsidiary of Murdoch's global media giant, News Corp.
Although Morgan showed occasional flashes of humor, the atmosphere was mostly tense during Tuesday's questioning.
At one point Morgan said he "doesn't believe" he ever listened to hacked voicemail messages and rejected suggestions he had any contact with the private detectives accused of carrying out many of the tabloids' dirtiest deeds, saying his subordinates would have been charged with giving them assignments.
Morgan also dismissed earlier interviews about phone hacking in which he said that "loads of newspaper journalists were doing it" or that he had trouble condemning the shady practices of private eyes "because obviously you were running the results of their work."
Morgan told the inquiry that those statements were based on nothing more than hearsay and the newspaper industry's "rumor mill."
He said he couldn't say who had filled him in on the rumors.
"My memory's not great about this. It was a long time ago," he said.
Occasionally when confronted by written excerpts from his autobiographical book, "The Insider" Morgan accepted that some of what he had done had crossed the line.
For example, Morgan acknowledged he had made use of Benji "the Binman" Pelham, a freelancer who specialized in raking though celebrities' trash to look for scoops.
"Did I think he was doing anything illegal? No. Did I think he was doing anything on the cusp of unethical? Yes," Morgan said.
Morgan was also quizzed about the cozy relationship between Murdoch and former Prime Minister Tony Blair a line of questioning which drew a heavy hint that the News Corp. executive chairman may himself testify before the inquiry.
At one point, inquiry lawyer Robert Jay told Morgan to stop speculating about what Murdoch might have remembered about a particular incident in which the two clashed.
"We can ask him for his recollection of events when we get there," Jay said.
A spokesman for the inquiry declined to elaborate, and News Corp. did not immediately return an email seeking confirmation. In July, Murdoch gave dramatic testimony before Parliament in which he denied any responsibility for phone hacking at his flagship Sunday tabloid, which he shut in the wake of the scandal.
Meanwhile, News Corp. announced settlements with seven more prominent figures victimized by the paper.
The company said in a statement Tuesday it had settled claims brought by Princess Diana's former lover James Hewitt, ex-Liberal Democrat lawmaker Mark Oaten, TV anchor Ulrika Jonsson, model Abi Titmuss and Paul Dadge, who helped rescue victims of the 2005 London transit bombings. Theatrical agent Michelle Milburn and Calum Best, the son of soccer legend George Best, rounded out the settlement list.
At least one more settlement with former England soccer player Paul Gascoigne appeared imminent, according to lawyer Jeremy Reed.
The terms of the new payments were not disclosed, but they are likely to be substantial. Sienna Miller received nearly $157,000 (100,000 pounds) when she settled with News International, while the family of a murdered British schoolgirl, Milly Dowler, was awarded $3.1 million (2 million pounds), plus an additional $1.6 million (1 million pounds) from Murdoch himself that was earmarked for charity.
Police say the number of potential phone hacking victims could be in the thousands.
CNN broadcast Morgan's appearance live but only on its international station.