If you use xlsxwriter as the Excel writing engine you can add a text wrap format to the column like this:

import pandas as pd

df = pd.DataFrame({'ID': ['111', '222', '222'],
                   'Data': ['Population\nDensity',
                            'Population\nDensity',
                            'Population\nDensity\nArea']})

# Create a Pandas Excel writer using XlsxWriter as the engine.
writer = pd.ExcelWriter('pandas_test.xlsx', engine='xlsxwriter')

# Convert the dataframe to an XlsxWriter Excel object.
df.to_excel(writer, sheet_name='Sheet1', index=False)

# Get the xlsxwriter workbook and worksheet objects.
workbook  = writer.book
worksheet = writer.sheets['Sheet1']

# Add a text wrap format.
text_wrap_format = workbook.add_format({'text_wrap': True})

# Add the format to column 2 (zero-indexed) and adjust the width.
worksheet.set_column(1, 1, 15, text_wrap_format)

# Close the Pandas Excel writer and output the Excel file.
writer.close()

Output:

Try adding

'text_wrap':'true'

to the add_format using the first method you describe.

If this also does not work you can try using set_text_wrap() method: http://xlsxwriter.readthedocs.org/en/latest/format.html#set_text_wrap

This will make sure text wraps at newline character '\n'

It should work using a \n newline in the string if you also specify text_wrap in the cell format (see the docs):

import xlsxwriter

workbook = xlsxwriter.Workbook('wrap.xlsx')
worksheet = workbook.add_worksheet()
wrap_format = workbook.add_format({'text_wrap': True})

values = ['1', '2', '3']

# Set an explicit row height for the wrapped text, if required.
#worksheet.set_row(1, 45)

worksheet.write(1, 1, '\n'.join(values), wrap_format)

workbook.close()

Output:

Note, when you wrap text in cells like this Excel normally adjusts the row height automatically to compensate unless you have already manually set the row height. I've put a commented out line in the example to show how to set the row height explicitly.

P.S. \r isn't required.