Union leader Elba Esther Gordillo, considered Mexico's most powerful woman, has been charged with fraud and organised crime.
Ms Gordillo, who runs the 1.5 million-member Mexican teachers' union (SNTE), was arrested on Tuesday on suspicion of embezzling $200m.
She reportedly spent millions at a US department store, on plastic surgery, property and a private plane.
Her arrest came a day after the enactment of major educational reforms.
'Pillars of society'
The reforms are designed to change a union-dominated system in which teaching positions could be sold or inherited.
Under the changes, teachers will have to undergo regular assessments, something that has previously never taken place inside Mexico's primary and secondary schools.
Critics say the changes could signal the start of the privatisation of education in Mexico.
Mexican President Enrique Pena Nieto tried to reassure union members following Ms Gordillo's arrest and the enactment of the reforms.
In a televised address, he told them that the government would continue to be their "ally" and work towards improving teaching conditions.
"You, teachers, are the pillars of the national education system," he said.
Mexico's Attorney General, Jesus Murillo Karam, said Ms Gordillo, 68, had hurt the very union she leads.
"We are looking at a case in which the funds of education workers have been illegally misused, for the benefit of several people, among them Elba Esther Gordillo," he said.
Prosecutors allege that she engaged in "systematic embezzlement", using union money to fund a lavish lifestyle including accounts in high-end department stores in the United States and two mansions in San Diego.
They argue she would not have been able to make those purchases on her salary.
In a brief court appearance on Wednesday, Ms Gordillo denied the charges. Mexican police meanwhile raided a number of her properties in Mexico in search of evidence of corruption.
The BBC's Will Grant in Mexico City says that Ms Gordillo is one of the highest-profile figures in Mexican political life, known simply as "La Maestra" or "the teacher".
As the SNTE's leader for more than 20 years, Ms Gordillo has held real influence over governments and presidents by persuading her members to vote as a single bloc.
The SNTE is the most powerful union in Latin America with an annual budget of tens of millions of dollars. Union officials have so far only said they were taken by surprise by Ms Gordillo's arrest.
Ms Gordillo has requested medical attention in jail saying she suffers from a range of ailments after she donated a kidney many years ago.
Her legal team have described her health as "precarious".