Four other men who had been kidnapped with him have been released, say residents of Zouera village, some 80km (50 miles) north of Timbuktu.
Villagers believe their abductors were members of al-Qaeda in the Islamic Maghreb (AQIM) targeting alleged spies.
French troops forced Islamist militants from key towns in the north last year and a UN force is now on the ground.
The kidnappings took place last Tuesday in Zouera, when the village held its weekly market which is attended by Tuareg nomads.
Witnesses said armed men, who arrived in two pick-up trucks, warned those at the market against becoming informants.
His decapitated body was found under a tree in the centre of town, they said.
Nomadic Tuareg communities in northern Mali have complained of being marginalised since independence from France in 1960.
They are amongst several groups attending on-off peace talks in Algeria to settle issues of how the north should be governed.
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