Robinson Thuku, police chief in Nairobi's central business district, said the diplomat was involved in an accident which he fled before police apprehended him and disarmed him.
Thuku said police are investigating the circumstances that led him to draw his gun "but the traffic offence is obvious." He said the diplomat was released on bail.
An Associated Press photographer at the scene said police fired three times in the air when they stopped the diplomat.
The public affairs office for the US Embassy in Nairobi confirmed the arrest but denied that the diplomat brandished a weapon.