Nadal was in Paris for the French Open, which he won on Monday for a record seventh time, beating Serbia's Novak Djokovic.
Luxury watchmaker Richard Mille had lent the Spanish tennis champion the watch. It vanished sometime late on Monday to early on Tuesday.
A police source, speaking on condition of anonymity, citing policy, said on Wednesday that the pricey timepiece was found on Tuesday along a railway track in the southern Paris suburb of Evry.
The suspect in the case, a 39-year-old barman who worked at the luxury hotel in Paris' 8th district, was arrested on Tuesday.