Amari Saifi, known as Abd al-Razak "the Para", was arrested along with one other person, German federal prosecutors said on Tuesday.
The Chadian government of President Idriss Deby declined to confirm or deny the report.
Saifi is thought to be a leader of the Algerian Islamist group, the Salafist Group for Preaching and Combat (GSPC), which held the European tourists, many of them Germans, hostage for several months.
The GSPC is included on a US list of terror organisations said to be linked to Usama bin Ladin’s al-Qaida network.
Thirty-two Austrian, Dutch, German and Swiss tourists were abducted in the Algerian Sahara desert in February and March 2003 and held for between three and six months. One, a German woman, died during her captivity.
"The prosecutor's office has received information that 'the Para' was taken prisoner in Chad along with one other person," said spokeswoman Frauke-Kathrin Scheuten, adding that "the circumstances still have to be clarified".
The hostages were held for
months in the Sahara desert
On 8 May, sources in Mali, where the last of the hostages were eventually released in August after a gruelling ordeal, said that Saifi was believed to have been captured by an armed group in Chad.
Since September 2003, he has been the subject of an international arrest warrant issued by Germany, after the tourists were seized in two groups, in which he was accused of blackmailing the government in Berlin.
The New York Times newspaper, quoting US military sources, reported last week that Germany had paid Saifi a ransom of six million dollars (five million euros) to have the hostages freed.
The government refuses to disclose whether a ransom was paid.
A diplomatic source in Mali said the group holding Saifi was either the Movement for Democracy and Justice in Chad (MDJT), a rebel group based in the north of the country, or a breakaway organisation.