Greek Cypriots Stephanos Yiannokou and Christakis Ioannou were taken into custody after 200 bullets were reportedly discovered in the boot of their car.
Both in their thirties, the smugglers were apparently caught red-handed between the Turkish north and Greek south of the bisected capital Nicosia. The 7.62mm rounds were for a G3 assault rifle.
The pair are to appear in court on Thursday, just days after the two estranged communities on Cyprus voted on a UN peace plan aimed at ending their 30-year division.
Unification was killed off by a massive "no" vote on the internationally recognised Greek Cypriot side, even though it received an equally strong "yes" from the breakaway Turkish Cypriots.
The results meant only Cyprus' Greek south can join the EU on 1 May.