Pasquale Scotti, 56, a leader of the Camorra, had been living under an assumed name in Recife, in northeastern Brazil, hiding his true identity even from his family.
He was arrested while driving his two daughters - 13 and 15 years old - to school.
He was married to a Brazilian woman and had lived in the same neighborhood for 28 years, presenting himself to the world as a businessman.
He told police he had fled Italy for fear of being murdered, the G1 news site reported.
The federal police said they were awaiting a request for Scotti's extradition to Italy.
In a statement, the police said Scotti was sentenced to life in prison in 1991 "for illegal possession of arms, resisting arrest, extortion and more than 20 homicides."