The cold case gained worldwide attention this year due to The Australian's investigative podcast series The Teacher's Pet.
Lyn Dawson's family are seeking privacy at this time, but are relieved.
The 70-year-old former rugby league player was taken into custody by detectives from the Queensland Police Service's Homicide Squad at his home in Biggera Waters just before 8am Wednesday.
"NSW detectives will apply for his extradition at his first court appearance".
Two separate inquests previously recommended to the NSW Director of Public Prosecutions (DPP) that a "known person", now identified as Chris Dawson, be charged with her murder, but the DPP determined insufficient evidence to lay charges.
New South Wales police commissioner Mick Fuller, who recently apologised for police failings on the case in the 1980s, said detectives had revisited the disappearance three years ago and a "fresh brief" of evidence had led to the arrest.
"They were predominantly statements from witnesses that helped us to tie pieces of the puzzle is together", he told reporters.
"We're certainly hoping an interview with this 70-year-old man who's now in custody in Queensland will assist us with the outcome of where the body may be".
Commissioner Fuller says they won't give up on trying to identify Lyn's whereabouts but locating her remains isn't crucial to finalising the matter.
Fuller acknowledged that media reports had contributed to police obtaining additional statements relating to the case.
The police have been criticised for not investigating Mrs Dawson's disappearance properly. Chris Dawson, the husband of missing Northern Beaches woman Lynette Dawson, has been refused bail in Southport Court.
The 70-year-old was arrested by detectives on Wednesday morning at his Queensland home.
Dawson's family said in a statement they had no doubt he'd be found innocent.
An aerial shot of the home in Bayview, showing the police tent set up.
In September a team of NSW police spent several days digging areas around the former Dawson family home, including by a swimming pool, where police believed it was possible Ms Dawson had been buried.
"I'm sure there's a hell a lot of people around Australia who are in the same situation as us in relation to a loved one going missing, but it's just one of those things you grin and bear it and we've fought to keep our sister's name out there and finally we've got some sort of justice on the way".
Prior to his wife's disappearance, Chris Dawson and his twin brother Paul had been star players for the Newtown Jets rugby league club.
