Jamie Murphy, 18, of Perth was arrested after a security guard at Sky Garden nightclub allegedly found a small packet of white powder in Murphy's money belt. In it, the teenager can be seen to be sitting in a chair, restrained with his hands behind his back, while the guards remove his bum-bag, in the presence of what looks like a police officer.
Murphy would be released because no crime has been committed, he said.
Murphy showed little emotion and replied with "yep" when asked if he was happy to be getting out as he was escorted through media by his legal team.
Australian Foreign Minister Julie Bishop said the case was a warning to thousands of Australian students and graduates who travel overseas to celebrate their graduations that they must abide by sometimes harsh local laws.
Footage appears to show the teenager being held by a security guard and professing his innocence.
She also says the youngster doesn't know how the powder made its way into his bag because he was only half conscious at the time.
"We have not yet dubbed him as a perpetrator", Wimoko said.
His blood and urine tests also returned negative results.
If any of those results comes back positive, the teenager faces jail time. Bishop, when questioned about the apparent aggressive behaviour of the police and security, said she " witnessed this kind of behaviour before from the Indonesian police" in other circumstances, but took pains to remind everyone that "we're subject to their laws, to their system and the way they do things".
It is believed that Murphy was carrying less than 5g of the substance - a significant number with life imprisonment the maximum penalty for being found with more than 5g of illegal grade-one drugs.
Australian Nicholas Langan, 26, was freed from a Bali prison in January after serving 12 months for sharing a marijuana cigarette on a beach.
The teenager will remain "locked up" until the substance is confirmed. He added that tourists in Bali are often sold substances claimed to be drugs but they turn out to be something else.
The teenager's friends have already visited him in detention.
Jamie Murphy, left, earlier in the day before he was detained by police.
"I don't want to say whether he is stupid or not".
He described Murphy as a wonderful young man and wonderful athlete and the allegations were uncharacteristic of him.