"Dara Singh has been giving us the slip for over a year," district magistrate DK Singh told the AFP news agency.
Graham Staines and his sons, Philip and Timothy, were burnt alive in their jeep at a Christian gathering in the state of Orissa in January 1999, in an act strongly condemned in India and around the world.
However, an enquiry commission later ruled that Mr Singh had worked alone and not on behalf of any Hindu organisation.
Police dragnet
Reports say that Dara Singh was arrested during an overnight raid on a jungle hideout, in a village in Orissa.
"Dara Singh has been giving us the slip for over a year," district magistrate DK Singh told the AFP news agency.
"But we got a tip off...[and] we picked him up at dawn," he said.
Police had put posters all over the state, offering an 800,000 rupees ($18,000) reward for information leading to his capture.
'Forgiven'
Mr Singh's capture has been welcomed by church leaders in India as well as Graham Staines' widow, Gladys.
She said she had forgiven Dara Singh in the Christian spirit.
"I have forgiven him ... forgiveness opens up the path of healing," she told an audience in Bombay.
The Staines' lived in Baripada, in Orissa, where they worked amongst the local tribal community.
The murder was widely condemned and was followed by a spate of other attacks on the minority Christian community in India.
Church leaders alleged the attacks were carried out at the behest of hardline Hindu organisations.
The Hindu hardliners accused Christian missionaries of forcibly converting poor and low-caste Hindus and tribals.
Last September, the US-based Human Rights Watch accused the Indian Government of failing to prevent violence against Christians, and of exploiting sectarian tensions for political ends.
The organisation said attacks against Christians increased "significantly" since the Hindu Nationalist BJP came to power.