Wayne Rodney Schneider, 37, was kidnapped on Monday by several men outside of his house in Pattaya, a sleazy Thai resort town renowned for its go-go bars and links with organised crime.
Security guards saw the Australian beaten unconscious and then thrown into the back of a van.
A day later police discovered his corpse in a hastily dug grave in woodland outside of the city.
The American, who has not been named, was charged with joint murder and kidnap, which carries a life sentence, Pattaya's police commander Sukthat Pumpanmuang told AFP.
The man "confessed" to driving the vehicle but "said he did not kill the victim... and did not know anything about the murder," Sukthat added.
Police have named their chief suspect as Antonio Bagnato, a 27-year-old Australian national, who was believed to have been out drinking with the dead man shortly before his disappearance.
Bagnato "has probably fled the country," Sukthat said, adding an examination of the victim's body showed his neck was broken.
Three other suspects are being hunted by police.
The Australian victim had been in Thailand for around one month at the time of his murder.
Thai police are yet to establish a motive but have ruled out a link to drug dealing.
Pattaya, which is 150 kilometres (93 miles) south of Bangkok, is notorious for its racy nightlife and seedy underbelly.
Australian newspaper reports said the dead man had previously had brushes with the law in his homeland, linked to his Hells Angels membership.
Australian outlaw biker gangs are believed to have built up a growing presence inside Pattaya in recent years.