The left-wing militant Nikos Maziotis was wounded along with a policeman and two bystanders, after allegedly taking part in an attempted robbery.
Maziotis led the anarchist movement Revolutionary Struggle, designated a terrorist group by the EU and US.
A 1m-euro ($1.3m; Â£800,000) bounty was put on his head after he disappeared in 2012.
Nikos Maziotis disappeared after conditional release from pre-trial detention in 2012. He was sentenced in absentia to 25 years for attacks by his group including on the US embassy and an Athens courthouse.
In April this year, Revolutionary Struggle claimed responsibility for a car bomb outside the Bank of Greece. It is one of a handful of home-grown anarchist groups here that, in recent years, have targeted political party offices and international figures.
The deadliest was the so-called November 17 movement, which assassinated more than 20 people including the CIA chief in Athens and the British military attache. One of its leaders escaped prison earlier this year and is still at large.
On Wednesday lunchtime Maziotis reportedly tried to rob a shop in central Athens whilst wearing a disguise.
After a policeman demanded his identity card, he opened fire, attempting to flee. The police shot back and captured him.
The shootout began in the crowded Monastiraki district, steps away from the city's central Syntagma Square.
Maziotis has been on the run since he was convicted last year of involvement in attacks in Greece organised by Revolutionary Struggle.
The left-wing militant group is best known for bombing the Athens stock exchange in 2003 and firing a rocket-propelled grenade at the American embassy in 2007.
One of Greece's most wanted men has been arrested after a shootout in central Athens.