Ali Hassan al-Majid, better known as Chemical Ali, was captured in the southern city of Basra, US officals said on Thursday.
He had previously been presumed dead, after US aircraft targeted his palace on the outskirts of Basra in April.
General Majid ranks fifth in the US list of 55 most-wanted Iraqis.
He was given the nickname of Chemical Ali in the 1980s, when he ordered the gassing of Kurdish towns and villages.
Human Rights Watch has said he is responsible for the deaths or disappearances of about 100,000 Kurds.
In 1991, he brutally suppressed the Shia uprising that erupted after US President George Bush exhorted Iraqis to overthrow Saddam Hussein.
Meanwhile, a number of US soldiers have been injured after a patrol came under a rocket propelled grenade attack early on Thursday.
Aljazeera’s correspondent in Iraq reported the incident happened in the city of Ba'quba.
US forces launched search operations into houses around the attack site, the correspondent added.
US forces also came under two separate attacks near the Iraqi-Syrian border, injuring a number of soldiers and damaging three armoured vehicles.
US forces immediately closed the area in an attempt to hunt down the assailants and arrested around 40 Iraqis, the correspondent added.