As commander of Bosnian Serb forces in the 1992-95 Bosnia war, Mladic was indicted by an international war crimes court in 1995 over the massacre of 8,000 Muslim men and boys in the town of Srebrenica and the brutal 43-month siege of Sarajevo.
"On behalf of the Republic of Serbia I can announce the arrest of Ratko Mladic. The extradition process is under way," Serbian President Boris Tadic told reporters in Belgrade.
Tadic said Mladic had been detained in Serbia, which had long said it could not find a man seen as a hero by many Serbs.
"This removes a heavy burden from Serbia and closes a page of our unfortunate history," he said.
Mladic was arrested in the village of Lazarevo, near the northeastern town of Zrenjanin around 100 km (60 miles) from the capital Belgrade, a police official said.
BITTERSWEET
Bosnian Muslim survivors said the news was bittersweet.
"I am happy to be alive to witness his arrest and at the same time very sorry many other Srebrenica victims did not live to witness this moment," said Munira Subasic, who lost her son and husband when Bosnian Serbs under Mladic seized Srebrenica, designated at the time as a "U.N. safe area."
A Mladic family friend earlier told Reuters Mladic had been taken to the headquarters of the Serbian intelligence agency after an interior ministry official said police had arrested someone thought to be Mladic and were checking his identity.
"He has some physical features of Mladic. We are analyzing his DNA now," the official said on condition of anonymity, adding that the man had documents on him bearing the name Milorad Komadic and was arrested on an anonymous tip.
The European Union said Mladic's arrest would show that Serbia, which under the late Slobodan Milosevic armed and funded Bosnian Serb forces during the war, wanted to move forward on European Union membership.
"This is an important step forward for Serbia and for international justice," European Union foreign policy chief Catherine Ashton Ashton said in a statement.
"We expect Ratko Mladic to be transferred to the International Criminal Tribunal for the former Yugoslavia without delay. Full cooperation with the ICTY remains essential on Serbia's path toward EU membership," she added.
Many Serbian nationalists idolize Mladic. Dozens were arrested and injured in 2008 throughout Serbia in riots following the arrest of Bosnian Serb wartime political leader Radovan Karadzic.
Tadic said he would not allow a repeat of such violence.