He didn't try to hide what he was doing: He tweeted a picture of himself on the Moscow metro as he headed to the demonstration. "Under house arrest, yes, but today I very much want to be with you. That is why I am also going," said the caption on the photo.
News agency Interfax reported that Navalny was detained by police and was returned to his home, instead of being taken to jail. He was on house arrest for a conviction in a 2009 case.
Earlier, Navalny was in court, where he got a three-and-a-half year suspended sentence for the fraud conviction, while his brother, Oleg, also convicted of fraud, was given a prison term of the same length.
Both were hit with steep fines, but only Oleg Navalny was ordered to pay.
When the sentence was read, Alexey Navalny shouted out in anger and frustration with the judgment against his brother.
The brothers denied charges of embezzling 30 million rubles ($540,000) from a Russian subsidiary of French cosmetics company Yves Rocher between 2008 and 2012.
There were strong feelings among some in Moscow that the brothers should not have been sentenced as they were. Despite the biting winter cold, their supporters gathered near the Kremlin in Moscow's Manezhnaya square Tuesday night to rally against the verdicts.
A Facebook page promoting the event predicted that thousands would attend, but the numbers were far smaller as the protest got underway.
The sentencing hearing was originally scheduled for January 15 -- when a big rally was planned -- but was brought forward at a day's notice, leading Navalny's supporters to slam what they said was an attempt to suppress protest.
Many people have left Moscow ahead of the New Year public holiday, making it harder to muster a crowd.
The protest is likely considered illegal because Navalny's supporters didn't have enough time to apply for the permissions required under Russian law, raising the prospect of a confrontation between protesters and police.
After the sentencing, Navalny supporters also accused the Kremlin of using Oleg Navalny as leverage against his brother.
However, they did voice surprise that the sentences were not tougher. Prosecutors had asked for Alexey Navalny to be given a 10-year prison sentence and Oleg to receive an eight-year term.
A corruption-fighting lawyer, Alexey Navalny famously branded the ruling United Russia party -- founded by President Vladimir Putin -- "the party of crooks and thieves."
He was a prominent organizer of mass street protests three years ago and has attacked corruption in Russian government, using his blog and social media.
Before Tuesday's ruling he was under house arrest after he was convicted last year
of misappropriating $500,000 worth of state-owned timber, in what he told CNN was a fabricated case.