The 3.5 metre (11ft) pregnant ichthyosaur lived at the time of the earliest dinosaurs during the early Jurassic period.
Scientists said the incomplete embryo was less than seven centimetres long and consisted of preserved vertebrae, a forefin, ribs and a few other bones.
There was evidence the foetus was still developing in the womb when it died.
The find adds to evidence that ichthyosaurs, some of which grew to more than 20 metres, gave birth to live young unlike egg-laying dinosaurs.
Dean Lomax, from the University of Manchester, who co-led the UK-German team, said: “This specimen provides new insights into the size range of the species, but also records only the third example of an ichthyosaurus known with an embryo. That’s special.”
The creature, named ichthyosaurus somersetensis, was discovered on the Somerset coast during the 1990s but ended up in the collections of the Lower Saxony State Museum in Hanover, Germany.
The new study also showed that a tail from another ichthyosaur had been added to the skeleton to make it appear more complete and visually appealing for display.
Palaeontologist Dr Sven Sachs, from the Bielefeld Natural History Museum in Germany, who also took part in the research, said: “It is often important to examine fossils with a very critical eye.
“Sometimes, as in this instance, specimens aren’t exactly what they appear to be.
“However, it was not ‘put together’ to represent a fake, but simply for a better display specimen.
“Specimens like this provide palaeontologists with important information about when these animals lived.
“Many examples of ichthyosaurus are from historical collections and most do not have good geographical or geological records, but this specimen has it all.”
The specimen was the largest of the ichthyosaurus family of ichthyosaurs on record, said the scientists writing in the journal Acta Palaeontologica Polonica.