Attorney General Jesus Murillo Karam said that Elba Esther Gordillo, who has led the 1.5 million-member National Union of Education Workers for 23 years, was detained in Toluca on charges that she embezzled 2 billion pesos (about $160 million) from union funds.
Gordillo, a colorful woman long seen as a kingmaker and power-behind-the-scenes in Mexican politics, was flown to the Attorney General's hangar in the Mexico City airport, where she asked to be checked by a doctor, Murillo told Milenio television.
Murillo said that Gordillo, 68, was in good health and awaiting transfer to appear before a judge. Two other people were also arrested but they were not named.
The investigation started in December after Santander Bank alerted authorities to bank transfers in billions of pesos, according to the attorney general.
"We are looking at a case in which the funds of education workers have been illegally misused, for the benefit of several people, among them Elba Esther Gordillo," Murillo said earlier at the news conference announcing her arrest.
Calls to the union's office seeking comment were not answered and Gordillo did not make a public statement.
It marks the downfall of a woman who rose from school teacher to become one of Mexico's most powerful political operators, displaying her opulence openly with designer clothes and bags, bodyguards, expensive cars and properties including a penthouse apartment in Mexico City's exclusive Polanco neighborhood. She has been widely lampooned for her many plastic surgeries and depicted in political cartoons as ghoulish.
Meanwhile, Mexico's teachers are poorly paid and public education has long been considered sub-par.
Prosecutors said they had detected nearly $3 million in purchases at Neiman Marcus using union funds, as well as $17,000 in U.S. plastic surgery bills and the purchase of a million-dollar home in San Diego.
Assistant Attorney General Alfredo Castillo displayed a series of charts at the press conference with arrows detailing the allegations of illicit transfers from teachers' union accounts to personal accounts in the names of three union workers, Nora Guadalupe Ugarte Ramirez, Isaias Gallardo Chavez and Jose Manuel Diaz Flores, as well as a real estate company.
None were authorized to deal with finances. It wasn't clear if they were among those arrested.
"Between 2008 and 2012, there was systematic embezzlement of union accounts," Murillo Karam said.
Some funds eventually ended up in bank accounts in Switzerland and Liechtenstein. Castillo said that in one case they transferred $1 million to a Swiss account for a company owned by Gordillo's mother. Those funds were then used to buy a million-dollar house in the island of Coronado in San Diego.
Her detention came a day after President Enrique Pena Nieto signed Mexico's most sweeping education reform in seven decades into law, seeking to change a system dominated by Gordillo in which teaching positions could be sold or inherited.
The overhaul was Pena Nieto's first major proposal since taking office Dec. 1 and was considered a political blow to Gordillo.
Gordillo had organized a string of protests by teachers against the reform, which moves much of the control of the education system to the federal government from the teachers' union. She was elected to another six-year term as union leader in October.
The reform creates a system of uniform standards for teacher hiring and promotion based on merit instead of union connections. It also allows for the first census of Mexico's education system, which Gordillo's union has largely controlled for decades, allegedly padding the payroll with thousands of phantom teachers.
So great is the union's control that no one knows exactly how many schools, teachers or students exist in Mexico.
For years, she has beaten back attacks from union dissidents, political foes and journalists who have seen her as a symbol of Mexico's corrupt, old-style politics. Rivals have accused her of corruption, misuse of union funds and even a murder, but prosecutors who investigated never brought a charge against her.
She was expelled from Pena Nieto's Institutional Revolutionary Party in 2006 for supporting other parties' candidates and the formation of her own New Alliance party.
Gordillo's arrest recalled the 1989 arrest of another once-feared union boss, Joaquin Hernandez Galicia, known as "La Quina." The longtime head of Mexico's powerful oil workers union, Hernandez Galicia was arrested during the first months of the new administration of then-President Carlos Salinas.
In 1988, he criticized Salinas' presidential candidacy and threatened an oil workers' strike if Salinas privatized any part of the government oil monopoly, Petroleos Mexicanos, or Pemex. On Jan. 10, 1989, about a month after Salinas took office soldiers used a bazooka to blow down the door of Hernandez' home in the Gulf Coast city of Ciudad Madero.
Like Gordillo, Hernandez Galicia's power was believed to represent a challenge to the president, and his arrest was interpreted as an assertion of the president's authority.He was freed from prison after Salinas left office.
Murillo denied that Gordillo's arrest was politically motivated and said it could not be compared to Hernandez's case.
"This was a very clear investigation and we will have more of them," he said.