It took three days to pump millions of litres of water out of the dam, after Rajesh Vishwas dropped the device while taking a selfie.
By the time it was found, the phone was too water-logged to work.
Mr Vishwas claimed it contained sensitive government data and needed retrieving, but he has been accused of misusing his position.
The food inspector dropped his Samsung phone, worth about $1,200 (100,000 rupees), into Kherkatta Dam, in the central Indian state of Chhattisgarh, on Sunday.
After local divers failed to find it, he paid for a diesel pump to be brought in, Mr Vishwas said in a video statement quoted in Indian media.
He said he had verbal permission from an official to drain "some water into a nearby canal", adding that the official said it "would in fact benefit the farmers who would have more water".
The pump ran for several days, emptying out roughly two million litres (440,000 gallons) of water - reportedly enough to irrigate 6 sq km (600 hectares) of farmland.
His mission was stopped when another official, from the water resource department, arrived following a complaint.
"He has been suspended until an inquiry. Water is an essential resource and it cannot be wasted like this," Priyanka Shukla, a Kanker district official, told The National newspaper.
Mr Vishwas has denied misusing his position, and said that the water he drained was from the overflow section of the dam and "not in usable condition".
But his actions have drawn criticism from politicians, with the state's opposition BJP party's national vice-president tweeting: "When people are depending upon tankers for water facility in in scorching summers, the officer has drained 41 lakh litres which could have been used for irrigation purpose for 1,500 acres of land."