Authorities expect that Ballarat-born Edward Norman Myatt, 54, will be hit with serious charges after allegedly being caught with the capsules at Denpasar's Ngurah Rai Airport.
Mr Myatt last night was in custody in the Indonesian city, where a succession of Australians have ignored warnings about drug smuggling and found themselves in dire trouble.
Serious drug offenders can face the death penalty by firing squad.
Authorities said Mr Myatt was arrested after landing in Bali on a flight from the Thai capital of Bangkok.
He was ushered from Tuesday's flight into a secure area for a preliminary examination before being taken to hospital. A grim-faced Mr Myatt was later led by investigators to a police station.
Indonesian police sources said he was allegedly carrying a large quantity of drugs on his body, concealed inside tiny capsules. Mr Myatt is alleged to have swallowed some of the capsules.
Source: News.com.au, March 1, 2012