He has been wanted in Peru on corruption and human rights charges.
Fujimori was detained on an arrest warrant issued by judge Orlando Alvarez, who was told by Chile's Supreme Court to consider Lima's request for his extradition hours earlier.
Fujimori, 67, was detained at the Marriott Hotel in Santiago and gave no resistance, according to police sources.
Earlier, he said he travelled to Chile to defiantly press on in a fresh bid for the Peruvian presidency.
"I plan a temporary stay in Chile as part of a return to Peru to keep a promise with a large part of the people of Peru that has called me to participate as a candidate for the presidency of Peru in the 2006 election," Mr Fujimori said in a statement before his arrest.
Police said he will be held pending a decision on the Peruvian extradition request.
Mr Fujimori arrived in a private airplane with a tourist visa, according to sources at Merino Benitez airport.
Mr Fujimori was Peru's president from 1990 to 2000, when he fled
the country under a cloud of scandal and resigned by fax from a
Tokyo hotel.
He has lived there ever since.
Japan had refused to extradite him to Lima because he holds Japanese nationality, with both parents Japanese immigrants to Peru.
He recently announced through a spokesman his intentions to
return to Peru to run again for president.
In Lima, President Alejandro Toledo convened an emergency cabinet meeting to discuss the situation.
He arrived in Chile at a sensitive moment as the two countries
haggle over their common maritime borders.
The countries have been rivals since an 1879-1884 war, in which Chile claimed a southern chunk of Peru.
On Friday, Peru's legislature passed a bill claiming a larger part of rich Pacific Ocean fishing waters as its own, and President Alejandro Toledo signed it into law, to take effect over the weekend.
Chile has expressed its opposition to losing 35,000 square kilometres of prime fishing grounds and said its military would continue to patrol the area.
Peru's government has repeatedly requested Japan extradite Mr Fujimori for trial on corruption charges, and recently said it would ask the World Court in The Hague for his extradition.