The Briton, David Fox, and Australian, businessman Giuseppe Serafino, were detained on Saturday for allegedly possessing small quantities of the drug.
Fox, who has covered conflicts and natural disasters around the world, told police he had been using hashish for years due to the stress of covering war zones.
"He started using hashish because of a work assignment as a Reuters journalist reporting from a conflict zone in Somalia," said Nyoman Artana, deputy police chief in the Balinese capital Denpasar.
Authorities raided Serafino's house in Sanur, in the south of the resort island, after a tip-off from local residents that a foreigner living there had been using drugs, police said.
Police found about seven grams (quarter of an ounce) of hashish in the house and the 48-year-old named Fox as someone who helped him buy the drugs, according to Artana.
Officials got the Australian to call Fox and arrange a meeting in a bar in Sanur, where the Briton was arrested. Police found 10 grams of hashish in his pocket and at his house, along with a bong.
An Indonesian soldier and police officer have also been arrested and are being questioned for allegedly offering to supply drugs to Serafino.
Police are questioning Fox and Serafino as suspected drug users. If found guilty of possession, they face up to 20 years in prison under Indonesia's tough anti-narcotics laws.
However they will escape the death penalty as they are not accused of drug trafficking, which is a capital crime in Indonesia.
Jakarta has sparked global outrage by hauling an increasing number of foreign drug convicts before the firing squad over the past two years.
Foreigners are regularly arrested for drugs offences on Bali, a popular resort island famed for its palm-fringed beaches that attracts millions of visitors every year.
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