Erin Patterson was arrested by homicide squad detectives at her home in Leongatha in South Gippsland just after 8am on Thursday.
Her Gibson Street house was searched with assistance from Australian Federal Police detector dogs.
Police will interview her on Thursday after the search and the investigation remains ongoing.
"Today's arrest is just the next step in what has been a complex and thorough investigation by homicide squad detectives and one that is not yet over," Detective Inspector Dean Thomas told reporters.
Heather Wilkinson, 66, her sister Gail Patterson and brother-in-law Don Patterson, both 70, died after falling ill following a lunch at Ms Patterson's Leongatha home in July.
Ms Wilkinson's husband Ian, 68, spent close to two months in hospital critically ill and is still in recovery.
Ms Patterson's two children were also at home during the lunch but did not eat the same meal.
"This investigation has been subject to incredibly intense level of public scrutiny and curiosity," Det Insp Thomas said.
"It's particularly important that we keep in mind that at the heart of this, three people have lost their lives.
"These are three people who by all accounts were much beloved in their communities and are greatly missed by their loved ones."
Police cars were seen parked outside Ms Patterson's home on Thursday morning as half a dozen specialist officers and trained dogs inspected the property.
A garage, shed, green bin and car were searched while the canines went in and out of the house.
Police believe the symptoms the four diners experienced were consistent with being poisoned by death cap mushrooms.
Detective Inspector Dean Thomas says the investigation has been subject to intense public scrutiny.
Homicide detectives had earlier named the Pattersons' daughter-in-law Erin Patterson as a suspect as she cooked the lunch that is believed to have led to the deaths.
She was previously interviewed by police and was released without charge.
In a statement to police obtained by the ABC, Ms Patterson said she made a Beef Wellington using button mushrooms from a major supermarket and dried mushrooms bought at an Asian grocery store.
The 49-year-old said she ate a serving and later suffered bad stomach pains and diarrhoea, contrary to the suggestion of detectives that she did not fall ill.
She denied any wrongdoing.
Victoria Police have not commented on Ms Patterson's statement other than to say it was not one taken by officers.
Specialist officers and trained dogs inspected the Erin Patterson's property.
Det Insp Thomas warned people to be mindful of speculation and of sharing misinformation about the probe.
"While we do want to provide timely updates about this matter, it is critical that doing this does not adversely impact the current investigation or any future processes," he added.
Hundreds of people attended public memorials for Mrs Wilkinson, Mrs Patterson and Mr Patterson, who were all remembered for their commitment to their families and tight-knit community in Korumburra.
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