Nelly, whose real name is Cornell Iral Haynes Jr, was taken into custody on a second degree rape charge, TMZ said.
In a statement his lawyer described the allegation as "completely fabricated".
"Our initial investigation clearly establishes this allegation is devoid of credibility and is motivated by greed and vindictiveness," Scott Rosenblum said in a statement.
Nelly is best known for his US number one hits "Hot in herre" and "Dilemma", but has not released new music for a number of years.
In 2015 he was arrested on felony charges after police found drugs and guns on board his tour bus.
The 42-year-old is currently on tour with the Backstreet Boys and Florida Georgia Line, and performed in Auburn on Friday night.
The bus was parked near a local Walmart at the time of the alleged incident. A police statement said they were continuing to investigate.
Nelly was due to perform on the Smooth Stadium Tour in Ridgefield near Portland on Saturday evening.
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