Nadal did reach the final of the Madrid Open, losing to Andy Murray on Sunday, but lost 400 points when he failed to defend the title he has won four times.
This is the lowest position in the rankings he has been since 2005, his fall has prompted several changes in the top-10.
Milos Raonic and Tomas Berdych are up two positions, fourth and fifth respectively, while Kei Nishikori went down one spot to sixth.
The current ATP rankings:
1. Novak Djokovic (Serbia) 13,845 points;
2. Roger Federer (Switzerland) 8,645;
3. Andy Murray (Scotland) 7,130;
4. Milos Raonic (Canada) 5,160;
5. Tomas Berdych (Czech) 5,140;
6. Kei Nishikori (Japan) 5,040;
7. Rafael Nadal (Spain)4,990;
8. David Ferrer (Spain) 4,310;
9. Stan Wawrinka (Switzerland) 3,575;
10. Marin Cilic (Croatia) 3,360