The Spaniard, who has won in Rome a record seven times, was given a stern test by Simon, but managed to come through the battle in three hours and 19 minutes, Xinhua reported.
Nadal, bidding for his eighth title in Rome this week, served for the opening set at 5-4 and 6-5, before prevailing in the tie-break after one hour and 11 minutes.
Nadal failed to hold onto a break lead early in the second, and needed to rally from triple break point down in the ninth game, reeling off five straight points to hold serve.
He earned a match point on Simon's serve at 6-5, but couldn't put away the victory as the Frenchman fought back and drew level.
Simon produced a series of fine winners to win five of the first seven points in the tiebreak, before winning the set after Nadal hit the net.
Nadal regrouped to break the former World No. 6 in the opening game of the third set. Simon pegged back with a break to love in the fourth game, only to lose his next service game as the match eclipsed the three-hour mark.
Nadal will face No. 14 seed Mikhail Youzhny, who was up 7-5, 4-1 in his second-round match when qualifier Andrey Golubev retired with an abductor strain.
Tomas Berdych and Grigor Dimitrov will face off in the third round for a second straight week. Berdych rallied from a set down to beat the Bulgarian in Madrid, before falling to Nadal in the quarter-finals.
The sixth-seeded Czech opened with a 6-4, 6-3 win over Russian Dmitry Tursunov, while No. 12 seed Dimitrov beat Croatian Ivo Karlovic 7-6 (3), 6-4.