Fire crews were called to the scene around 9.30am (AEST) on Wednesday after the blaze started inside a Rivers clothing store in Coffs Harbour city centre.
Twelve people were treated by paramedics for smoke inhalation, four were taken to hospital for further treatment and several hundred were evacuated from shops.
About noon on Wednesday, a 48 year old Coffs Harbour man was spoken to on the nearby Pacific Highway, police say.
He was arrested and taken to Coffs Harbour Police Station for questioning.
Firefighters remained on scene, working to extinguish the blaze.