Alfie had been screaming and crying during a trip back from shops, the car’s driver Marcus Lamb told the jury.
He added that he heard Hoare slap the boy, before the front passenger seat moved backward and the child cried “Mummy”.
The seat remained where it was, prosecutors said, adding that Alfie went “ominously quiet”.
Mr Lamb claimed he only realised something was amiss when the group arrived at their destination in Croydon, south London.
Mr Waterson pulled Alfie from the vehicle, a blue Audi convertible, and Ms Hoare asked him “What have you done?”, Mr Lamb said.
Unresponsive, Alfie was taken to hospital by the emergency services and put on life support, which was switched off days later last February.
Prosecutor Duncan Atkinson QC said a pathologist found the “smiley boy” had died from crush asphyxia.
He said: “In effect, he was squashed by the car seat and suffocated. This movement of the seat was a deliberate action by Waterson who knew that Alfie was there and was angered by the noise and fuss that the three-and-a half-year-old was making during the fateful car journey. The deliberate movement of the seat, by electrical operation – by the touch of a button – and involving the application of considerable force to Alfie took place not once but twice.
“Waterson was prevailed on to move the seat forward again because it became immediately obvious that it was causing Alfie breathing difficulties. However, when Alfie made noise again, Waterson deliberately moved his seat back again, and kept it in that reversed position, squashing Alfie, as he again showed signs of breathing problems until he went ominously quiet.”
Police found CCTV footage showing that Ms Hoare, Mr Waterson, Mr Lamb and his girlfriend Emilie Williams had all travelled together in the Audi.
Mr Atkinson said: “It was during that car journey that something happened to Alfie that compressed his chest and/or abdomen so that he went from an active toddler to a very seriously ill and brain damaged one.”
Since Alfie’s death, the other occupants of the car had been attacked, Ms Williams by Ms Hoare and Mr Lamb by Mr Waterson, the court heard.
Ms Hoare denies manslaughter, child cruelty and common assault on Ms Williams.
Mr Waterson has pleaded not guilty to manslaughter and intimidation of Mr Lamb.
The couple, of Croydon, and Williams have pleaded guilty to conspiring to pervert the course of justice by making false statements to police.