You have found your ball but it is unplayable. Note that deciding that a ball is unplayable is entirely the choice of the player whose ball is in question.
There are three options when a ball is unplayable:
Take a drop not more than two club lengths from the place where the ball was at rest and not nearer the hole. Penalty one stroke.
Take a drop back in line with the hole far as required. Penalty one stroke.
Go back to the where the ball was last played and drop as near as possible to the same spot.
Penalty one stroke.
What you can NOT do is drop on the line that the ball took on the shot that resulted in the unplayable lie.