Rocco Morabito -- described as a prominent member of the Calabrian Mafia known as the Ndrangheta -- was living in a luxury villa and was using a false Brazilian passport, CNN reported.
Morabito was convicted in absentia for drug trafficking and organized-crime activities in Italy and sentenced to 30 years in prison.
Italian authorities said that Morabito had been responsible for shipping drugs into Italy and arranging distribution in Milan.
The Uruguayan Interior Ministry said Morabito was arrested Friday in a hotel in the Uruguayan capital of Montevideo, CNN reported. Italian police said the arrest followed "months of international cooperation and intelligence activity."
Italian Interior Minister Marco Minniti said Morabito was "considered one of the sought-after members of the Ndrangheta".
Uruguayan authorities said some months ago Morabito tried to enroll his daughter in a local school using his real name, and his fingerprints were confirmed by Italian authorities, CNN reported.
Authorities said Morabito entered Uruguay in 2001 using false Brazilian identification papers, including a bogus birth certificate. For the last decade he lived in a rural villa near the town of Maldonado, CNN reported.
When he was arrested, Morabito had 13 cell phones, an automatic pistol, 12 credit and debit cards, a large quantity of Uruguayan money and $50,000 in United States currency, plus currency certificates worth US $100,000, the Uruguayan Interior Ministry said.