Malka Leifer is accused of abusing several pupils while she was the principal of the ultra-orthodox Adass Israel girls school in Elsternwick.
In 2008, when the allegations were first raised, she fled to Israel, and was arrested there six years later when Australia filed an extradition request.
She was released on bail but has avoided all of her extradition hearings since then, claiming poor mental health made her too unwell to face court.
But overnight Israeli authorities revealed Ms Leifer was back in custody after an undercover police operation.
A lawyer representing some of Ms Leifer's alleged victims, Nick Mazzeo, said his clients were "elated" at the news of the arrest.
"There was a time when some of us had lost some hope, and didn't want to imagine that Leifer's extradition would be tied up in red tape," he told The World Today.
"The 10 years it's taken is unfortunate, but that things are moving in the right direction is a big plus for everyone involved."
Mr Mazzeo said there was "no doubt" numerous appeals from the federal and Victorian governments and other Australian authorities helped keep Israel on the case.
Both Prime Minister Malcolm Turnbull and Victorian Premier Daniel Andrews made personal appeals to Israeli authorities.
"This lay stagnant for quite some time and certainly the political pressures that were being put on the Israeli government and law enforcement agencies no doubt helped in terms of moving this matter along," he said.
"The gratitude my clients have for everyone involved, from Prime Minister Turnbull all the way down to the law enforcement agencies in Australia and Israel — they are elated, relieved and look forward to having Leifer come over here and be tried for what she's done."
Alleged victims 'had their hopes broken so many times'
Israeli authorities allege Ms Leifer is faking her mental illness to avoid extradition.
Mr Andrews told ABC Radio Melbourne Ms Leifer should be brought back to Australia quickly.
"I think it is a significant breakthrough, not just that she's been arrested, but in fact she's been accused of having fabricated some of these issues," he said.
"People I think have every right to expect that she will come home and she will face justice."
Dr Michelle Meyer, the CEO of Tzedek, which provides support to Jewish survivors of sexual abuse, said many complainants within the orthodox community feared speaking out.
"A lot of them will not come forward, there's just too much shame in coming forward and breaking their silence," she said.
"I don't think they'll feel that justice has been served until [Leifer] is actually here. They've had their hopes broken so many times."
Israel 'vigilant, rigorous' in their pursuit of Leifer
Sisters Dassi Erlich, Nicole Meyer and Ellie Sapper, all alleged victims of abuse at the school, learned of the arrest in a late night call from the Israeli Ministry of Justice.
Ms Erlich was worried the day would never come, but said the sisters were realistic about how long the extradition process could take.
"Just knowing that we're one step closer I think has filled us with a lot of hope," she said.
"There's chance for appeals, even if the extradition does go through. Then it can go through the Appeals Court and the Supreme Court, so it can take a while."
Ms Meyer said it was unusual for members of the Jewish community to speak up about sexual abuse.
"You want to appear as normal as possible so that marriage prospects and job prospects and [your] future life will continue to flow as normal," she said.
Manny Waks, an advocate and campaigner for victims of sexual abuse and founder of Tzedek, said he hoped more details of the extradition process would be revealed in the coming days.
"Until we actually see her in Australia, or at least on a plane on her way to Australia, that's when we'll feel a lot more relieved and much more confident in actually believing that justice will happen very soon," he said.
"I have faith in the Israeli system, in the Israeli judicial system, what they've proven by today's arrest that they weren't going to let this issue go, they were quite vigilant and rigorous in their work."
In 2016, a civil case was brought against Ms Leifer by one of her students, who was awarded $1.2 million by the court.
Mr Mazzeo, who represented the student, said the case related to the school's failure to properly care for the pupil, and was the first decision of its kind in Australia.
He said there may be more civil cases launched if the ex-principal was extradited.
Mr Mazzeo said it was disappointing some members of the community in Israel had been protecting Ms Leifer.
"It's hard for us to understand it, but the Addas community over there where Leifer lives is an ultra-orthodox community, where it's quite a closed environment," he said.
"I'd imagine there are people there that want to help her because she's part of the community, which is very unfortunate."