Gadahn, the first American to be charged with treason since the second world war era, is one of the FBI's top 10 most wanted terrorists and has had a $1m reward offered for information leading to his capture.
The 31-year-old is believed to have been captured in recent days in the seaport metropolis, according to Pakistani intelligence officers. Authorities there also said the arrest was a joint operation with US intelligence and he had been shifted to Islamabad for interrogation. Officials in Washington would not confirm the arrest.
Raised in southern California, Gadahn converted to Islam at 17 and left the US about 10 years ago, later attending Taliban or al-Qaida training camps in Afghanistan, US officials say.
In others, he ceremoniously tore up his American passport and said his grandfather was Jewish, ridiculing him for his beliefs and calling on Palestinians to continue fighting Israel.
A US indictment against him for treason and giving material aid to al-Qaida stems from a series of videos shot between 2004 and 2006 in which Gadahn, styling himself Azzam al-Amriki, taunted the United States, acknowledges he had joined al-Qaida and praised the September 11 terrorist attacks.
Gadahn was brought up by parents who lived a self-sufficient lifestyle, for years owning no telephone, producing their own electricity from rooftop solar panels, and home schooling Gadahn and his three siblings.
His father slaughtered livestock in the ritual Islamic fashion in order to sell them at a local Muslim market, through which Gadahn was exposed at an early age to Islam, although his parents have been described as non-denominational Christians.
Gadahn converted to Islam at 17, later working at a mosque in Orange County, California. In 1997, he assaulted an elder who questioned his work habits and was expelled from the mosque, serving two days in jail. He left the US in the late 1990s, and later married an Afghan refugee.