The 40-year-old man from Melbourne was arrested by police in Amsterdam after the AFP alerted Dutch authorities.
Arrest warrants were issued in November for the man, alleged to be the head of an international drug smuggling operation spanning three continents, the AFP said.
The AFP will ask the federal government to seek his extradition to Melbourne to face charges of importing a marketable quantity of cocaine into Australia.
The AFP alleges the syndicate, operating out of Australia, Canada and the Netherlands, conspired to import cocaine using an international network of drug couriers.
“Taking out the principals in this alleged drug syndicate will help disrupt the flow of illegal narcotics into both Australia and Canada,” AFP spokesman Roman Quaedvlieg said.
“This operation depended heavily on international law enforcement cooperation from Canada and Holland.
“Its success is a testament to the efficacy of our cooperation with foreign police agencies.”
The 40-year-old man is believed to have given evidence against gangland figure Tony Mokbel, who was convicted of drug trafficking by the Victorian Supreme Court last year.
Mokbel is currently serving a 12-month jail sentence in Greece after being found guilty of identity fraud.
A 31-year-old man from Hawthorn, in Melbourne, and a 37-year old Canberra man, also believed to be major organisers in the drug syndicate, were arrested at their homes yesterday.
The Hawthorn man has been charged with a proceeds of crime offence in relation to the syndicate's activities, the AFP said.
The Canberra man has been charged with conspiracy to import a marketable quantity of a border controlled drug.
He was expected to be extradited to Melbourne today.
Documents, mobile phones and computers were seized at the Canberra address.
AFP officers also executed search warrants at five inner-suburban Melbourne premises in Southbank, Prahran, South Yarra, St Kilda and Hawthorn, seizing credit cards and materials which could be used in the production of narcotics.
The maximum penalty for the drug offences is a fine of $550,000 and/or 25 years imprisonment, the AFP said.