Deyan Valentinov, 28, was arrested on suspicion of stabbing and decapitating the 60-year-old woman in a supermarket in the town of Los Cristianos on the island of Tenerife Friday, Sky News reported.
Witnesses said the man entered a Chinese supermarket and without saying a word, stabbed the woman and cut off her head, which he then carried out of the store and down the street. Witnesses tackled the man and held him for police.
"It was all a bit surreal," said Colin Kirby, who witnessed the event.
Kirby said he heard screaming and "assumed someone had fainted. I glanced behind me and a guy was ambling down the street holding what I assumed to be a joke head, by the hair."
Kirby said Valentinov seemed disoriented.
"The guy did not seem completely right to me -- he was a bit disheveled, not particularly smart and as he was walking with the head he was muttering. It was a bizarre scene."
Police said the British victim was of Chinese heritage.