He was not "lost" in the first place; it is just that he lived a very private life after his retirement. The general public did not know where he was exactly but it was not at all that he was a missing person or something along these lines.
He died in a hospital, more precisely at l’hôpital de Saint-Girons (Ariège), in the south of France, near the French-Spanish boarder. This is also the general region that was named all the time for his location. Thus, the answer to the question where he was is in Ariège.
I have no information how he spent his last days, and who exactly communicated his death to the general public (and I am rather unsure this is relevant here), but the fact that he died in a hospital in a highly developed country that was moreover his home-country, shows that there is no mystery at all about his death having become known.
Source: the obituary of Grothendieck in the major French newspaper Liberation mentioned the place of his death.