Gen Henry Odillo and his former deputy, Lt Col Clement Kafuwa, are accused of arranging a contract to supply military equipment which was never delivered.
The Anti-Corruption Bureau (ACB) has detained them as part of an on going investigation into government corruption known as "cashgate".
Neither Gen Odillo nor Col Kafuwa have commented on the allegations.
The BBC's Raphael Tenthani in Blantyre says dozens of civil servants have been charged in the "cashgate" investigations and so far there have been at least five convictions.
The scandal has revealed several cases of money being spent without services being provided.
The two military men may be facing charges of abuse of public office, negligence by a public officer in preserving money and money laundering, a statement from the ACB says.
An investigation has found that the army paid $4.4m (£2.8m) for the equipment that was not supplied.
The "cashgate" issue came to light in September 2013 after the attempted assassination of the finance ministry's budget director Paul Mphwiyo.
Just days before, a junior civil servant was allegedly found with more than $300,000 in cash in the boot of his car.
More cash was confiscated from some civil servants' homes and car boots.
Malawi's donors then withheld $150m pending further investigation into the scandal.
- BBC
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