Troops escorted the former four-star general to the island's main Welikada prison, hours after the government announced that President Mahinda Rajapakse had approved Fonseka's conviction by a military court.
"He was taken from military custody and handed over to prison authorities to start his sentence," an army officer said.
Fonseka fell out with Rajapakse over who should take credit for defeating the Tamil Tigers in May last year and unsuccessfully tried to unseat him in a January election.
Fonseka was found guilty at a court martial on four counts of making irregular purchases for the military when he was its commander at the height of fighting in the island's northeast.
Rajapakse approved the sentence of two-and-a-half years "rigorous imprisonment" on Wednesday after returning from addressing the United Nations in New York, Media Minister Keheliya Rambukwella said.
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"The president, as commander-in-chief, has confirmed the court martial decision," Rambukwella told reporters. "T