Nicholas Salvador, a six-foot-tall cage fighter, believed that 82-year-old Palmira Silva was Nazi leader Adolf Hitler or a demon when he stabbed her repeatedly before cutting off her head and holding it aloft.
The random attack took place last September in Edmonton, north London, where Salvador went on a rampage while staying with friends living three doors away from Silva.
He armed himself with a wooden pole and a machete and killed two of his hosts' cats before running through back gardens on the street, kicking down neighbours' doors.
Salvador was Tasered six times by police before they could bring him under control, and afterwards was recorded repeating phrases like "red is the colour" and "I am the king" over and over again.
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He denied murder by reason of insanity, a plea the jury accepted.
His trial heard that two psychiatrists had agreed he was suffering from paranoid schizophrenia, and prosecutors conceded that he was "a very sick man".
Acting as the judge, recorder Nicholas Hilliard gave Salvador a hospital order, which is expected to see him continue treatment at the high-security Broadmoor hospital where he is currently being held.
"You thought you were encountering some demonic force which had taken on a human form. You could not have been more deluded.