The 36-year-old Federer won the Australian Open and Wimbledon last year, while Nadal, 31, became the oldest year-end world number one after claiming a 10th French Open and the US Open.
Both men are up for the Sportsman of the Year prize – an honour Federer has won four times and Nadal once, in 2011 – alongside Mo Farah, the 10,000m world champion, Formula One world drivers' champion Lewis Hamilton and Tour de France and Vuelta a Espana winner Chris Froome.
The British trio are joined by Real Madrid and Portugal footballer Cristiano Ronaldo, who helped guide Los Blancos to the La Liga title, a record 12th European Cup and the Fifa Club World Cup last year.
Farah, named BBC Sports Personality of the Year in 2017, said: "I've been nominated a few times for a Laureus Award, but haven't quite managed to get this one over the line yet! 2017 was an incredible year for me and I'm overwhelmed with the support and recognition I've already received but winning a Laureus Statuette would be amazing.
"It would be even more special given the super talented sportsmen I'm up against - like Cristiano Ronaldo, Lewis Hamilton and Roger Federer! The winner is announced next month but whatever happens, thanks to Laureus and to the world's media, who voted to nominate me."
"Honoured to be nominated for the 2017 Laureus Sportsman of the Year Award," said Ronaldo, who also won a fifth Ballon d'Or this year. "This is only possible because of the great team effort at Real Madrid. Thanks to all my team-mates and also to the world's media for having placed me among the candidates to win this very special award."
Federer has been recognised in the Comeback of the Year category. The diverse shortlist includes Chapecoense, who won the Copa Sudamericana title less than six months after the death of 19 of their players and staff in a plane crash.
Barcelona, who scored two goals in stoppage time to beat Paris Saint-Germain in the Champions League, world athletics champions Sally Pearson and Justin Gatlin and MotoGP legend Valentino Rossi complete the line-up.
The Sportswomen of the Year nominees are led by Serena Williams, who won her 23rd grand slam singles crown at the Australian Open while pregnant. Fellow Americans Katie Ledecky, five times a winner at the World Swimming Championships, athlete Allyson Felix and skier Mikaela Shiffrin are also included.
Wimbledon champion Garbine Muguruza joins Nadal in being nominated for the main individual awards, while the women's shortlist is completed by South African Caster Semenya, who won 800m gold at the World Championships in London.
Meanwhile, Anthony Joshua's stunning knock-out of Wladimir Klitschko and victory over Carlos Takam see him put forward for the Breakthrough of the Year prize, alongside the French Open champion Jelena Ostapenko, Masters winner Sergio Garcia and French and PSG striker Kylian Mbappe.
The winners will be revealed on 27 February with a glitzy ceremony in Monaco.