Fish and chip shop owner Andy Star, 31, and Farhad Salah, 22, were arrested when counter-terrorism police officers raided their homes in Chesterfield and Sheffield on December 19, just days before Christmas.
The two men, both Kurdish Iraqis, are jointly charged with one count of engaging in the preparation of an act of terrorism, Westminster Magistrates' Court in London heard on Friday.
Dressed in prison issue tracksuits, the men appeared at the hearing via a video link from Leeds Magistrates' Court.
The court heard that they are accused of possessing "low explosive black powder".
The pair were among four men arrested on December 19.
South Yorkshire Police said a 36-year-old man from Burngreave in Sheffield remains in custody, while a 41-year-old from Meersbrook in Sheffield was released on Saturday.
Star, who owns the Mermaid Fish and Chip Bar on Sheffield Road in Chesterfield, and bearded Salah, who lives in Brunswick Road, Sheffield, were remanded in custody by District Judge Tan Ikram ahead of a hearing at the Old Bailey on January 19.
Star's lawyer Sajad Chaudhury told the court: "The offence is denied and at the first opportunity at the Crown Court he will indicate a not guilty plea."