Officials said the capsule the size of a pea was found south of Newman on the Great Northern Highway.
It was detected by a search vehicle travelling at 43 miles per hour when specialist equipment picked up radiation emitting from the capsule.
The capsule was then picked up about 6ft from the side of the road.
Emergency services minister Stephen Dawson said: “This is an extraordinary result … They have quite literally found the needle in the haystack.”
Chief Health Officer Andy Robertson said the capsule did not appear to have moved and no injuries had been reported.
It contains the caesium 137 ceramic source, commonly used in radiation gauges, which emits dangerous amounts of radiation, equivalent of receiving 10 X-rays in an hour. It could cause skin burns and prolonged exposure could cause cancer.
Search crews had spent six days scouring the entire length of the highway.
The capsule measures 8mm by 6mm (0.31in by 0.24in), and people have been warned it could have unknowingly become lodged in their car’s tyres.
A government investigation has been launched into how the capsule fell off the truck and a report will be provided to the health minister.
Defence officials were verifying the identification of the capsule, which has been placed into a lead container for safety. It will be stored in a secure location in Newman before being transported to a health facility in the city of Perth.
The capsule got lost while being transported between a desert mine site and Perth on January 10. The truck transporting the capsule arrived at a Perth depot on January 16. Emergency services were notified of the missing capsule on January 25.
The chief executive of the mining giant Rio Tinto Iron Ore, Simon Trott, has apologised over the incident.
Rio Tinto Iron Ore Chief Executive Simon Trott said, “We are incredibly grateful for the hard work of everyone involved in finding the missing capsule.
“While the recovery of the capsule is a great testament to the skill and tenacity of the search team, the fact is it should never have been lost in the first place. I’d like to apologise to the wider community of Western Australia for the concern it has generated.
“We are taking this incident very seriously and are undertaking a full and thorough investigation into how it happened.
“This sort of incident is extremely rare in our industry, which is why we need to investigate it thoroughly and learn what we can to ensure it doesn’t happen again. As part of our investigation, we will be assessing whether our processes and protocols, including the use of specialist contractors to package and transport radioactive materials, are appropriate.”
The capsule was small (6mm diameter, 8mm long), round and stainless steel part that formed part of a level sensor.