The 70-year-old was arrested on the Gold Coast on Wednesday morning and taken to Southport Police Station.
The mystery case gained global media attention and a cult following, with The Teacher's Pet podcast trending internationally and attracting 27 million listeners around the world.
A podcast about the disappearance of a young mother in Sydney 36 years ago has led to the arrest of her husband after new witnesses came forward with fresh evidence about the case.
An inquest in 2003 found that Dawson, a former teacher, started an affair with a 16-year-old student who moved in with him days before his wife went missing.
The new evidence helped police "tie pieces of the puzzle together", NSW Police Commissioner Mick Fuller told reporters in Sydney.
He was refused bail to appear at Central Local Court on Thursday afternoon.
The Commander of the NSW Homicide Squad, Detective Superintendent Scott Cook, said Mr Dawson was "calm" but "taken aback" when he was taken into custody.
Meanwhile, Chris Dawson's family has released a statement proclaiming his innocence.
He is expected to be charged with Lynette Dawson's murder.
Lynette Dawson disappeared in 1982.
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The duty lawyer told the court he was willing to surrender his passport and live with a brother in NSW.
Since then homicide squad detectives had gathered new evidence and it is thought the police case will in part rely on two witness statements uncovered by Teachers Pet.
He said media reports had contributed to officers gaining additional statements relating to the disappearance.
Detectives in September dug up the backyard at the Bayview home the couple shared in the early 1980s but did not find her remains or items of interest.
"We have sold homicide before without identifying the body", he continued.
"There was additional evidence that was identified and that has seen the DPP make a positive decision in prosecuting an individual for the murder of Lynette Dawson", Mr Fuller said.
It has highlighted the bungled handling of the Dawson case by police in the early years after her disappearance, prompting an apology so many years later from the state's police commissioner.
"We've had a cry, we've cuddled, we're just completely over the moon that something has finally happened".
"We haven't given up hope in terms of finding Lynette Dawson's body".
"We have no doubt whatsoever that Chris will be found not guilty as he is innocent".