Mark Karpeles was detained Saturday, the Tokyo-based company said in a statement.
He is suspected of accessing the exchange's computer system and falsifying data to change the outstanding balance, Japan's Kyodo News Agency reported ,citing the Metropolitan Police Department.
A day earlier, a report emerged that Karpeles was going to be arrested, prompting him to send a message
to The Wall Street Journal describing the allegations as "false." He told the paper that he planned to deny them.
Mt.Gox was one of the world's largest bitcoin exchanges until February last year, when it stopped investors from accessing money after becoming the target of online hackers.
The exchange later filed for bankruptcy debts of 6.5 billion yen ($64 million).
According to its statements, Mt.Gox made $380,450 in revenue during 2012. However, it lost 13 times that amount the next year, when it also handed more than $5 million to the U.S. government for allegedly lying on bank documents.
At the time of its closure, Mt.Gox said that it couldn't find 850,000 bitcoins, leaving angry customers out of pocket.
However, soon after, the company said it had recovered 200,000 bitcoins -- worth about $56 million at today's rates -- from an old-format wallet used before June 2011.
That reduced the number of missing bitcoins to 650,000, or around $183 million at current rates.