As he and O'Connor moved to walk back into the nightclub, officers swooped and Williams allegedly threw three packets of cocaine on the ground.
They were handcuffed and taken for processing at the central police prefecture in the 17th arrondissement of Paris.
Both were said to be intoxicated and were put into separate "sobering cells" alongside drunk and drug-affected suspects.
They were then moved to another police station and again separated.
The second police cell was quiet, but then Williams and O'Connor were moved to a third station which housed hardened criminals who had serious street credentials, some affiliated to violent drug gangs.
The 26-year-old former Wallaby and 35-year-old former All Black spent a number of hours alongside these men, though officers routinely checked in, before police received results from drug tests conducted on the pair.
O'Connor allegedly returned a positive result for cocaine but because he did not physically handle any drugs during the arrest he was spared a charge and given an undisclosed fine for "intent" to consume.
Williams was charged with buying cocaine and will front court at a later date. If the Racing 92 player is found guilty, his working visa could be revoked by the French government.
O'Connor will travel from Paris to his club headquarters in Toulon tomorrow to face owner Mourad Boudjellal.
Off-contract in July, O'Connor has been negotiating a new deal with Toulon but this latest controversy has halted all talks.
If Boudjellal does decide to retain O'Connor - after all, he did sign former NRL star Ben Barba after he'd been found guilty of using cocaine - it may not be the end of the problems for O'Connor.
Officials of the Top 14 competition could enforce severe suspensions on O'Connor and Williams, who has been suspended indefinitely by Racing.
The cocaine fine has put an end to any hopes O'Connor had of returning to Australian rugby this year.
The ARU tore up his contract in 2013 for repeated off-field indiscipline and will not risk further controversy again.
Former Wallaby Stephen Hoiles said O'Connor should take a year out.
"If I was James O'Connor or his parents or his manager I'd be getting him out of France once this stuff clears up," Hoiles told the Big Sports Breakfast radio show.
"I'd be looking at taking a year away from professional rugby because something is not right with him.
"He's been in and out of trouble his whole career."
