James Erskine told the Australian Associated Press that Thorpe was affected by a combination of antidepressants and the painkillers he was taking for a shoulder injury.
Police spoke to Thorpe after residents near his parents' home in Panania in Sydney's southwest reported a man allegedly breaking into a van. He was taken to Sydney's Bankstown Hospital for assessment and was later transferred to a rehab facility.
"He is in rehab for depression," AAP quoted Erskine as saying.
Erskine said Thorpe had thought he was sitting in his friend's car.
"The owner of the car basically called the police and the police came," he said. "They realized it was Ian Thorpe. They realized he was disoriented."
Erskine said Thorpe, 31, had been taking antidepressants and medication for his shoulder but had not been drinking alcohol.
"He hadn't had a drink," he said. "He had zero alcohol in him."
Police said no official complaint has been made and no further police action is anticipated.
Thorpe, who is currently living in Switzerland, has been staying with his parents over Christmas.
Erskine's admission that Thorpe is in rehab comes only days after Thorpe's management company denied reports he checked into a rehab facility while battling depression and alcohol abuse.
News Corporation, quoting friends of Thorpe, said he had been injured in a fall at his parents' home and was taken to hospital. Reports said Thorpe checked into a rehab facility, but later checked out and returned to his parent's home.
Thorpe's management company, SEL, later issued a statement denying the reports.
"Ian is not in rehab," a SEL representative said Friday.
"Ian was in hospital for an operation on his shoulder and is pleased to let his friends and fans know that he is now out of hospital and on the mend."
In his autobiography, published last year, Thorpe said "not even my family is aware that I've spent a lot of my life battling what I can only describe as crippling depression."
Thorpe, known to fans as Thorpedo, was a freestyle specialist and one of the greatest swimmers of his generation. He won three gold and two silver medals at the 2000 Sydney Olympics — the most medals won by any individual competitor at those games — and two more golds at the 2004 Athens Olympics.
He also won 11 world championships gold medals, including six at the 2001 championships at Fukuoka, Japan. When he won his first world championships gold at the age of 14 in Perth in 1998, he was the youngest-ever individual male world champion.
At various times Thorpe held 13 individual world records and shared five others in relay events.
The 400m freestyle was his signature event which he dominated at Olympics and World championships over more than six years.
Thorpe retired from swimming in November, 2006, but attempted a comeback in 2012. His attempt to win a place on the Australian team for the London Olympics was unsuccessful and his thoughts of competing at the 2013 World Championships or 2014 Glasgow Commonwealth Games were thwarted by a shoulder injury.
Friends said he struggled to adjust to life after swimming.