The prescription drug Stilnox was banned by the Australian Olympic Committee just before the 2012 Games and the athletes now face sanctions from the governing body for breaching their Olympic team membership agreement.
Stilnox, a brand of the medication zolpidem, is not banned by the World Anti-Doping Agency but was prohibited by the AOC because of its hallucinatory effects and after former Olympic champion Grant Hackett said he had become addicted to it.
"We stand here collectively to confirm that we did take part in a bonding exercise during which members of the relay team took Stilnox," the six swimmers said in a statement read out at a news conference in Sydney.
"We acknowledge by our recent action in continuing a recent tradition in the Australia swim team, we have let ourselves down and the people who have supported us."
Olympic silver medallist Magnussen and his team-mates Matt Targett, Eamon Sullivan, James Roberts, Cameron McEvoy and Tommaso D'Orsogna apologised for their actions.
The statement said the drug had been prescribed before the AOC ban and the swimmers had then indulged in "childish" and "stupid" pranks such as knocking on the doors of other athletes.
The AOC said they would be appointing a lawyer to conduct an investigation into these and other disciplinary issues relating to the swimming team in London.
"All members of our 2012 team were well aware of the ban imposed. The AOC will consider what action it will take in the light of these admissions," read a statement.
"Possible sanctions for a breach of the team agreement might include withdrawing funding from the athletes concerned."
Magnussen received A$10,000 from the AOC for winning a silver medal in the men's 100 metres freestyle, while Targett and D'Orsogna were paid A$7,500 for winning bronze as part of the 4x100m medley relay team.
The athletes face the possibility of losing part or all of those rewards as well as funding for preparation for major events, including the 2016 Olympic Games.
Magnussen was hot favourite to win the 100 freestyle in London and suggested the weight of expectation on him contributed to him agreeing to take the drug.
"I think one of the reasons that I agreed to go along with this night was I was feeling under so much pressure and it had been building for the best part of a year," the 21-year-old said.
"In hindsight, a ridiculous choice, and a ridiculous method to do that.
"I have a lot of regrets, but I don't feel think it affected my performance. My preparations continued on as per normal immediately following the next day."
Misuse of prescription drugs along with allegations of drunkenness, breaching curfews, deceit and bullying were highlighted in a review published on Tuesday, which said slack management had allowed a "toxic" culture to develop in the team.
Roberts said he personally had never taken Stilnox.
The relay squad arrived in London confident of winning gold but ended up fourth in the final as the swimming team produced Australia's worst results in the Olympic pool for two decades.
"As a senior member of the team I should've stood up and took more leadership at the time," said Sullivan.
"If I thought for one moment that these actions and our communal decisions to take Stilnox would affect our performance, there's no way I would've done it. And I believe there's no way it would've affected our performance at all."
- Sports & Recreation
- Australian Olympic Committee