The nine-time winner had only lost nine games in his first two matches but was forced to pull out because of a left wrist injury.
The news is a major blow for the tournament, which lost Wawrinka's countryman Roger Federer to a back injury three days before the start.
Wawrinka said of Nadal: "We all saw photographs where he was touching his wrist or his wrist was hurting. It was no big secret. But, then again, it is a surprise because no one knew how much it hurt.
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"It's unfortunate for the tournament, for the fans, for tennis. But it's very tough for him, because wrists are fragile things, and I hope that he's managed to stop in time to get this fixed.
"I know how much an injury is difficult, and I'm always sad when such champions need to retire from a competition. These types of people are great for tennis."
Wawrinka played the match of his life to beat Novak Djokovic in the final last year and is playing himself into fine form again in Paris.
After being taken to five sets by Lukas Rosol in the first round, Wawrinka has not lost a set since and defeated France's Jeremy Chardy 6-4 6-3 7-5 on Friday.
He said : "It was a great match. I'm very happy with the level of my game. Everything that I did today was pretty high level. I hit the ball well. I was moving around well. I managed to do what I wanted."
The most eagerly-anticipated match of the day pitched French ninth seed Richard Gasquet against headline-making Australian Nick Kyrgios.
But it proved to be a damp squib, with Kyrgios bothered by a shoulder problem and unable to find a solution to Gasquet's greater clay-court experience.
After going down 6-2 7-6 (9/7) 6-2, Kyrgios said: " I got absolutely destroyed. It wasn't really fun. I struggled today pretty much in every aspect. I had chances in the second set and I just didn't play big. I just played really bad today. Really bad."
Fifth seed Kei Nishikori, who next plays Gasquet, and 15th seed John Isner both survived five-set battles to move into round four.
Nishikori, who is fancied for a long run here, saw Spanish opponent Fernando Verdasco fight back from two sets down to level the match but it was the Japanese player who prevailed 6-3 6-4 3-6 2-6 6-4.
Isner found himself two sets to one down against Russian Teymuraz Gabashvili and then lost the first two games of the decider but thereafter won six in row for a 7-6 (9/7) 4-6 2-6 6-4 6-2 victory.
The American, known for his 11-hour epic against Nicolas Mahut at Wimbledon in 2010, said: "I t was a five-set match, it wasn't too long. Obviously I have been out there a lot longer over five sets. I feel fine and ready to keep going."
Isner will play second seed Andy Murray in the fourth round after he beat the game's other giant, Ivo Karlovic, in straight sets.
Eighth seed Milos Raonic was a 7-6 (7/4) 6-2 6-3 winner over lucky loser Andrej Martin and is confident a hip problem for which he needed treatment will not hamper him too much going forward.
The Canadian said: "The trainer was able to sort of assure me that, from what he could tell, there was nothing serious there. I'll have tests done on it now and take it from there."
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