The pair were allegedly handing over cash to a drug dealer in the early hours of Saturday morning (France time).
Ali Williams has spent the night in a police cell after being arrested on suspicion of attempting to buy cocaine.
A World Cup victor in 2011, he now plays for French club champions Racing 92.
Both are now playing from French clubs.
The arrests occurred a little after 3am local time outside of a nightclub near the Champs-Elysees.
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The 26-year-old Australian and the 35-year-old New Zealander were reportedly nabbed after allegedly giving more than 200 euros to two suspected dealers for cocaine.
LCI.fr reported that Williams allegedly tried to throw away several packets containing cocaine after being approached by plain clothes police officers.
The pair, now playing for French clubs Racing 92 and Toulon respectively, were stopped at around 05:00 outside a night club near the city's Champs Elysees avenue and found to be in possession of two grammes of cocaine, police added.
Over the course of his career Williams picked up 77 caps for the All Blacks, including an appearance as a replacement in the home 2011 World Cup final win over France. "If the investigation confirmed the possession of cocaine and the transaction, it would not only be an offense under the law but also a serious fault in terms of our ethics".
More unwelcome trouble for the club came earlier this month when Carter, 34, the two-time All Black World Cup victor and three times world player of the year, was stopped for drink-driving in Paris on February 15 and admitted to making a "massive error in judgement".