Warren Weinstein, a development expert, was recovered from the city of Khushab, some 200km (125 miles) northwest of Lahore, the police said.
The US embassy has not yet confirmed the release.
Mr Weinstein has been in Pakistan for at least five years. He was to return to the US on 15 August.
The abduction of Pakistanis for ransom is common and a few foreigners have been targeted by militant groups.
Lahore police chief Malik Ahmed Raza told the Associated Press news agency that they had traced Mr Weinstein, 70, to Khushab city and freed him early on Thursday.
Mr Weinstein, who has been working for the firm JE Austin on development in tribal areas, was abducted by eight gunmen from his house on 13 August.
Mr Weinstein reportedly lived mainly in Islamabad but travelled to Lahore.
JE Austin Associates is a development contractor that works alongside the US government's aid arm.
Mr Weinstein is described on the firm's website as an "expert in international development with 25 years experience".
US-Pakistan ties have been strained since a US military raid into Pakistan killed al-Qaeda leader Osama Bin Laden in May.
And in February, many Pakistanis were angered when a CIA contractor, Raymond Davis, shot dead two men he said were trying to rob him in Lahore.
He was freed and sent home after the US paid compensation to the families of the dead.
Foreigners are infrequently targeted by kidnappers in Pakistan; the last such incident involved a Swiss couple who were kidnapped in the south-western province of Balochistan in July.
Five-year-old British boy Sahil Saeed was kidnapped when visiting his grandmother's home in the Punjab region in March 2010.
He was released after being held for 12 days when a $180,000 (£110,000) ransom was paid by his family.
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