The Transformers star was taken into custody, and charged with criminal trespass and disorderly conduct.
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Shia LaBeouf pictured in LA last week
NYPD spokesperson George Tsourovakas said the 28-year-old actor began making a disturbance and then used obscene language and became belligerent when security asked him to leave.
"He was being rather difficult and combative, verbally… to the point where security guards asked him to please leave the premises and he refused," he said. "Police were called and he was detained and arrested."
Audience members confirmed that Shia had been extremely disruptive throughout the first act of the musical.
According to Broadway World, he was in tears when he was taken away by police; on Twitter Tony-nominee Benj Pasek noted, "Just saw Shia LeBeaouf in handcuffs in tears surrounded by 6 police officers outside of CABARET the musical."
Shia LaBeouf made headlines in February when he wore a paper bag over his head
This latest incident is likely to cause concern for fans of Shia, whose behaviour in recent months has become increasingly erratic.
Earlier this year, he made headlines when he stepped out onto the red carpet at the Berlin Film Festival wearing a brown paper bag with "I'm Not Famous Anymore" written on it over his head.
Prior to that, he got into a fight with three men at a London pub, and became embroiled in a plagiarism row with author Daniel Clowes, to who he later apologised before tweeting he was retiring from all public life.
Last year, Shia famously quit the Broadway production of Orphans, and then shared several emails between himself and fellow actors Alex Baldwin and Tom Sturridge.