Mr Hickey, 71, is suspected by police of being linked to an international scheme to illegally pass Olympic tickets to touts who were reselling them at well above their original price.
He has temporarily stepped down from his position as IOC executive board member and all other Olympic roles "in light of this morning's developments and his ill health" until the matter is resolved, the Olympic Council of Ireland said in a statement.
Local media reported that Mr Hickey, who also heads the European Olympic Committee (EOC), was detained at the hotel Windsor Marapendi near the Olympic Park and was rushed to hospital after his arrest.
He was taken to hospital as a precaution, and will probably stay the night there, police said.
Irish broadcaster RTE reports that Mr Hickey faces three potential charges: facilitating ticket touting, forming a cartel, and "ambush" or illicit marketing.
In an interview with RTE last week, Mr Hickey denied any wrongdoing in relation to ticket sales.
Mr Hickey was a member of the IOC's coordination commission for the Rio Games, the body in charge of overseeing preparations for the first Olympics held in South America.
His arrest comes after police detained last week a director of international sports hospitality company THG Sports, Kevin Mallon, and a translator employed by the company, alleging that they could have made 10 million reais ($US3 million) from buying tickets and reselling them at a higher price.
THG has rejected the accusations against the company and Mr Mallon, saying that more than 1000 tickets seized by police were being held legally on behalf of authorised Irish reseller Pro 10 and criticising local Olympic organisers.
Mr Hickey is a former judoka and is honorary life president of the Irish Judo Federation. He has been head of the OCI since 1989. He is also a senior vice president of the Association of National Olympic Committees. In 2015, he led the first European Games organised by the EOC in Baku Azerbaijan.