Prince Harry has promised to obey the royal command, but not until after his girlfriend Cressida Bonas had seen it, the Sunday Express reported.
Harry has been sporting the beard since last month while on his 'Walking With The Wounded' charity trek to the South Pole.
He returned to Britain just in time for the festive celebrations at Sandringham but although his brother William and sister-in-law Kate said they loved his "Windsor whiskers" his grandmother was apparently not amused.
Harry has said beards are a royal tradition and told a well-wisher watching his family walk to church on Christmas morning that he intended to keep his.
"The rest of the family liked it and were taking the mickey, especially his cousin Zara who dubbed him 'Prince Hairy'," a royal insider was quoted as saying by the daily.
"But the Queen soon let her displeasure be known. She doesn't mind royal men growing beards when they are away in the Armed Forces or out in the wilds like Harry was in the Antarctic, but she expects them to be clean-shaven when they get home.
"Royal staff are not supposed to grow beards or moustaches and she probably thinks it is difficult to enforce that rule when her own grandson has a beard," the royal insider said. "Harry doesn't like to upset the Queen and will probably shave it off soon but he is still a bit of a rebel and he wasn't going to remove it straight away. He wanted to show it off to Cressida first and see what she thought of it," the source said.