Detectives discovered the ruse after waiting until the man, 32, passed the fake stone that he had swallowed at the Facets Sri Lanka annual jewellery exhibition in Colombo last week.
“The man with the real stone vanished while all the attention was on the man who was seen swallowing a stone that turned out to be fake,” police spokesman Ajith Rohana told AFP.
“Investigations are now underway to track down the accomplice and recover the stolen diamond. We think both of them were involved in a racket.”
Police said the man appeared to swallow a tiny 1.5-carat diamond – creating a distraction as the stall owner shouted to nearby police who arrested him.
The accused man was taken to Colombo National Hospital where X-rays showed a stone lodged in his stomach before a dose of laxatives brought it out on Saturday.
Police said the man had been constantly monitored by armed guards to ensure the stone was not lost.
Suresh de Silva, director of the Belgrade International gem store, told AFP last week how the two Chinese men approached his stall and asked to examine some diamonds closely.
De Silva then saw one man put something in his mouth.
“When I shouted, one ran away and we managed to catch the man who swallowed the stone,” de Silva said.
Photographs showed the captured man, dressed in a black shirt and jeans with his head bowed, being escorted from the exhibition centre by uniformed policemen.
Sri Lanka does not mine diamonds but it has a large gem and jewellery industry and is famed for its blue sapphires.