Gunmen shot Nisio Gomes in Mato Grosso do Sul and took away his body, which is still missing.
Police only confirmed his murder last week, after finding that a witness who claimed to have seen him alive had been paid to give false evidence.
Mr Gomes, 59, led a Guarani group which had returned to its land after being evicted by ranchers.
A spokesperson for the federal police in Ponta Pora, in the southern state of Mato Grosso do Sul, said they had arrested 10 people belonging to a private security firm suspected of having been hired to attack Mr Gomes's camp.
The spokesperson said another eight people, six of them landowners, were being held on suspicion of masterminding the attack.
Confession
The police official said there had been a breakthrough in the investigation into Mr Gomes's disappearance when two suspects confessed in exchange for a more lenient sentence.
The suspects said they worked for a private security firm and described being hired by a group of eight people to murder the indigenous leader.
Members of Nisio Gomes's Guarani Kaiowa group had all along described how masked gunmen had broken into their camp and shot their leader in the head, chest, arms and legs, before loading his body into a truck.
Police officials said that "at first we had doubts because there was very little blood in the camp and we had a witness saying he had seen Chief Gomes in Paraguay."
They said their enquiries showed the witness had been paid to give false evidence.
Medical examiners further said that Mr Gomes could have had a cardiac arrest, which would have explained the small amount of blood at the scene.
The Guarani are the largest indigenous group in Brazil, with approximately 46,000 members spread over seven states.
They say they are frequently forced from their ancestral land by farmers, and receive little or no protection from local authorities.
Police in Brazil have arrested 18 people in connection with the killing of an indigenous leader last November.