Hector Beltran Leyva, known as "El H", was caught along with a suspected henchman in a seafood restaurant in San Miguel de Allende, a historic town in central Mexico, without a shot being fired, authorities said.
Tomas Zeron, director of investigations at the attorney general's office, said Beltran Leyva was passing himself off as a "well-off businessman dedicated to real estate and art sales to justify his lifestyle."
Beltran Leyva, who was carrying a gun during his arrest, was detained after an 11-month investigation, Zeron said. Military intelligence work allowed authorities to find his home in the central state of Queretaro.
The arrest allows President Enrique Pena Nieto to cross off another big fish from Mexico's most wanted list following the capture of Sinaloa cartel kingpin Joaquin "El Chapo" Guzman in February and Zetas leader Miguel Angel Trevino last year.
"This action proves the effectiveness of the public policy of security and law enforcement to get the peaceful Mexico that we desire," Pena Nieto wrote on Twitter.
Two other brothers, Alfredo and Carlos, are in jail.
Zeron called Beltran Leyva one of Mexico's top drug traffickers, who specialized in moving cocaine from South America and Central America to lucrative US and European markets.
Mexico had offered a USD 2.2 million reward for information leading to his arrest, on top of a USD 5 million US bounty.
He faces charges in Washington and New York courts.
But the two cartels went to war after Alfredo Beltran Leyva was detained in 2008 following a betrayal by Guzman, officials have said.
