Police said the diplomat was stopped following an earlier accident on Lusaka Road, but drew his gun causing panic.
He was immediately disarmed and taken to Central Police Station for questioning.
His identity was not immediately revealed, but police confirmed he is a US diplomat.
“He is under arrest for now undergoing interrogation to determine if he was justified to draw out his gun when he was stopped,” a senior police officer told Capital FM News, “We want to establish if there is reason for him to face charges.”
The diplomat’s vehicle registration 29CD 701K was also detained at the Central Police station. Police said he was also being questioned over the accident on Lusaka Road.
A US embassy official said they were offering him consular assistance and will issue a statement once all the facts are established.
There has been an upsurge on gun misuse in Nairobi lately, with several licensed gun holders arrested and charged.