Mr Valdez was detained in a police operation in central Mexico, following intelligence work which began in June 2009, a Public Security Ministry statement said.
The 37-year-old was a key lieutenant of Arturo Beltran Leyva, who headed the cartel that bears his name and was Mexico's third most-wanted man until his December 2009 death in a military operation.
As a head of the Beltran Leyva's assassination squad, Mr Valdez was thought to have been involved in a power struggle to replace Arturo, competing with his brother, Hector Beltran Leyva.
The US State Department has offered up to $2m for information leading to his arrest and capture, and Mexican authorities offered $2.2m.
The capture offers some relief to President Felipe Calderon's government after an escalation of drug violence in the northeast of the country, including the massacre of 72 migrants last week, blamed on the Zetas gang.
Mr Calderon confirmed the arrest on Twitter.
Authorities have captured a string of top drug bosses in recent months amid a controversial military crackdown on organised crime, which has accompanied a spike in violence, with more than 28,000 killed since 2006.
The Beltran Leyva gang, one of a string of violent drug gangs operating in Mexico, was dealt a severe blow with the death of chief Arturo last December and then the arrest of his younger brother, Carlos.
It broke off from the powerful Sinaloa drug trafficking organisation in 2008, allegedly after members of that gang tipped off authorities, helping them arrest Alfredo Beltran Leyva.
The gang is responsible for procuring arms and ammunitions from the US and the trafficking of illicit drugs, including cocaine, marijuana, heroin and methamphetamine, according to the US State Department.
Mr Valdez is charged in a 1998 indictment in Texas and a 2002 indictment in Louisiana.
Born in the Texan border city of Laredo, the drug trafficker was responsible for dozens of deaths in central Mexico and near the Pacific beach resort of Acapulco in recent months, according to Mexican authorities.
Many of those killed were mutilated, beheaded and sometimes hung from bridges.
