Thanakorn Pakdeepol broke into the shrine housing a four-faced statue of Brahma, venerated by Hindus as the creator and popular with tourists, early on Tuesday, police said.
He used a hammer to smash the statue, which was built beside the Erawan hotel, where George Bush, the US president, stayed during a state visit in 2003.
Somyos Srikamsuk, a taxi driver, told Channel 3 television: "After a scream from a street vendor shouting 'our father was destroyed', I saw three or four men arresting that man and beating him up.
"He was unconscious, but still alive when police got there."
Police Colonel Supisan Pakdeenarunart said two cleaners who tended the shrine had been arrested and charged with murder.
Thanakorn's father, Sayan, said the 27-year-old had been in and out of hospitals with mental health problems for 10 years.
People who believe that the statue had granted their wishes offer gifts, carved wooden elephants being the most popular, and pay for Thai classical dances, making the shrine a lively spot.
A sign says the shrine was built 50 years ago to protect the Erawan hotel, because the foundation stone was laid on an inauspicious day.
The statue before it was damaged
Police cordoned off the compound with yellow tape and the remains of the shrine were draped in white sheets. Offerings of yellow garlands and lotus flowers lay nearby.
Dozens of people gathered on the pavement, holding their hands in prayer and lighting incense sticks and candles.
San Trinh, 50, a Cambodian living in California who was on holiday in Thailand, said: "This is so sad. It cannot be good luck."
He visited the shrine a few years ago after his sister had been denied permission twice to visit the US. But after he made offerings at the shrine, he said she was granted a visa.
"Many people really believe in this place," he said.