The 45-year-old had stopped taking his medication when he allegedly set fire to his own ute, under the delusional belief that it would somehow help protect his family.

The alleged arson occurred while the man was watching the New Year's Eve fireworks with his family in Canberra. He allegedly walked off, took a pair of overalls, doused them with flammable liquid, set them on fire, and placed them in the tray of his ute.

Since his arrest, the man's condition appears to have stabilised, and he is back on medication after spending about a week in the hospital's mental health unit on a court order.

His case came before Magistrate Robert Cook on Friday, and the defendant applied for bail.

Mr Cook said he could not be satisfied the man would comply with his bail conditions, stay on his medication or voluntarily remain in the Canberra Hospital's Adult Mental Health Unit if given bail.

The defendant had also torched his home in Longreach, Queensland, two weeks ago, the court heard, and tended to act on his delusional thoughts to alleviate anxiety.

That made the risk of reoffending too high, the magistrate found.

Mr Cook said there was simply nowhere other than prison for the man to go. The jail's mental health team would treat and manage his condition, the court heard.

"The issue for me with bail is that there is no place for you to go," he told the man.

The decision is likely to see the man remanded in custody for at least a month, until he comes back before the court in early February.

The ACT still lacks an operational secure mental health unit, which would be able to provide secure care for such offenders.

A 25-bed secure facility is currently under construction in Symonston, but is not expected to be completed until the end of the year.

Such a facility has long been described as the missing link in the ACT's criminal justice and mental health systems.

Mr Cook did not specifically refer to the lack of such a unit when making his decision on Friday.

But other magistrates have frequently complained of the difficulties posed by the gap in services when trying to house defendants with a mental illness.

Officers came across the burning car on London Circuit's grass verge about 9pm on New Year's Eve.

Police tried to extinguish the fire, but it spread to most of the ute before firefighters arrived.

No one was in the vehicle at the time.

When police arrived, the defendant walked up to them and told them it was his car. He was holding his wife's handbag, which he had retrieved from inside the vehicle. He said he was hearing voices and had a mental illness.

The court heard that the man's deterioration had made his wife scared for the safety of her and her children.

The wife and children had been with the man at a picnic area, when he left them about 9pm. A short time later, the wife saw the family car on fire.

No pleas have yet been entered.

The matter has been listed to re-appear on February 4.