Oscar Osvaldo Garcia Montoya, 36, was arrested in an overnight raid on a presumed safe house on the outskirts of Mexico City, State of Mexico Attorney General Alfredo Castillo said at a news conference.
"The Hand with Eyes" is one of the groups blamed for bringing the drug violence typical of northern Mexico to Mexico City and its surrounding areas.
The organization is known for extreme violence, including decapitations. Many of its victims have been drug dealers and rivals killed as the group fought for control of drug sales in Mexico state, an area that includes many of the poor suburbs ringing the capital.
Castillo said Garcia is a deserter from the Mexican marines who worked as a bodyguard for major cartel figures including Edgar Valdez, aka "La Barbie," a top assassin for the Beltran Leyva cartel until he was arrested in 2010.
With the capture or death of Valdez and most of the leaders of the Beltran Leyva cartel, Garcia split off and formed his own group.
Garcia is known as "El Compayito" after a popular Mexican talking hand-puppet character created by an entertainer who dresses up his hand and puts eyes on it. The crime gang apparently took its name from Garcia's puppet nickname.
"In the first declarations that have been gathered, El Compayito and-or 'The Hand with Eyes,' has acknowledged having participated personally in 300 murders and ordering another 300," Castillo said.
The bushy-haired Garcia gazed coolly when he was paraded before journalists Thursday, held firmly by two masked police officers.
Castillo said Garcia had received some training from members of the Guatemalan special forces called the "Kaibiles," who are known for massacres during the Guatemalan civil war that ended in the 1990s. Some of them are believed to have been hired by Mexican drug cartels.