Gotovina, one of the UN war crimes tribunal's top three fugitives, is wanted for crimes committed against ethnic Serbs at the end of the 1991-1995 Serbo-Croatian war.
He was indicted in July 2001 for alleged atrocities against rebel Serbs in a government offensive in August 1995 to retake rebel areas of Croatia, and has been on the run since.
His evasion from arrest had been a key obstacle in Croatia's attempts to join the European Union, whose leaders were for a long time sceptical over how hard the government in Zagreb was trying to track down a man many Croats see as a national hero.
Speaking in Belgrade on Thursday, UN chief war crimes prosecutor Carla del Ponte said Gotovina was arrested overnight in Spain's Canary Islands and he was now in detention, pending transfer to the Hague.
Nato Secretary-General Jaap de Hoop Scheffer said the arrest of Gotovina was "good news for the world, for bringing people to justice who are not yet convicted but who are accused of very serious crimes".
A spokesman for the British EU presidency said the arrest would remove "an important obstacle" for Croatia's bid to join the 25-nation bloc.
EU enlargement commissioner Olli Rehn welcomed the arrest of Gotovina as "very good news".
Nato chief Jaap de Hoop Scheffer
has called the arrest 'good news'
"The arrest of Ante Gotovina is very good news. For reconciliation in the region of the Western Balkans and for ICTY to successfully accomplish its work, it is fundamentally important that all indictees are brought to justice," he said in a statement on Thursday.
Zagreb started EU entry talks in October after a seven-month delay because it was not providing enough help to the ICTY in finding Gotovina.
"I urge the authorities in other countries, notably in Serbia and Montenegro and Bosnia and Herzegovina to step up their efforts and continue to work until full cooperation is reached and the remaining indictees, including Ratko Mladic and Radovan Karadzic are brought to The Hague," Rehn said.
Del Ponte has set 14 December - the 10th anniversary of the Dayton peace accords that ended war in Bosnia - as the deadline for the arrest of the former Bosnian Serb military chief Mladic and his wartime political chief, Karadzic.
Karadzic and Mladic have been indicted by the ICTY for genocide and crimes against humanity notably for their role in the 43-month siege of Sarajevo and massacre of more than 8000 Muslim men and boys in the eastern Bosnian enclave of Srebrenica in July 1995.
Croatia earlier said Gotovina had
fled the country after July 2001
Croatia had claimed all along that Gotovina, a former French Foreign Legion veteran, fled the country just before his indictment was made public in July 2001.
However, it stepped up the hunt for him after the EU delayed the start of Zagreb's membership talks in March, and ordered all police and intelligence agents to do their utmost, including liaising with foreign services.
Serbia has faced similar international criticism over the continued freedom of Karadzic and Mladic. Gotovina's arrest will only intensify the pressure on Belgrade to help catch them.