They said the alleged fraud amounted to $30 million.
Authorities seized 40,000 kilograms of tobacco and confiscated $450,000 in cash. They also claim the investigation, which began in September 2012, was the largest ever involving contraband tobacco in North America.
Quebec provincial police Sgt. Joyce Kemp said Montreal's Italian Mafia teamed up with aboriginal organized crime to illegally import the bulk tobacco.
The tobacco made its way into Canada in big trucks after being purchased by the Mafia in North Carolina, she told reporters.
"It was hidden with other merchandise (and) often what was used was cedar mulch to hide the (odour) of the tobacco."
Police said the tobacco was imported into Canada through the Lacolle border crossing or through the Akwesasne Mohawk reserve.
Kemp said that after crossing the border, the truckloads were hidden for two or three days in a warehouse to ensure they hadn't been spotted. The tobacco was then transferred to factories where the contraband cigarettes were made.
The cigarettes were then allegedly sold on the Kahnawake reserve south of Montreal.
Arrests and searches were carried out mainly in the Greater Montreal Area. Police were still searching for another seven people. Charges against the accused include fraud, conspiracy and illegal importation.
Those arrested include Montrealer Nicola Valvano, 53, who was described by authorities as an influential member of the Italian Mafia in Montreal.
Provincial police Insp. Michel Pelletier told the news conference that profits from the illegal sales were divvied up between the two groups.
"There was a sharing of profits which was done in the order of 60-40, that is 60 per cent of profits went to the Italian Mafia and 40 per cent to aboriginal organized crime," he said.
Pelletier also said a bar strategically located near the Canada-U.S. border was targeted because it was involved in the criminal activities.
James Spero, a special agent with U.S. Immigration and Customs Enforcement, said the arrests send the message that Canada and the United States will not allow the border to be a barrier to law enforcement.
"Organized crime who wish to profit from international smuggling are going to face stiff penalties and be brought to justice on both sides of the border through co-operation such as that happened on this case," he said.
Spero also would not rule out the extradition of some of the accused to the United States.
"Its probably a little too early to talk about potential extradition," he said. "But we are certainly trying to build a case and get some charges in the U.S. as well.
"Certain crimes and certain violations have taken place on the U.S. side and certain crimes and certain violations have taken place on the Canadian side and what we do is we get together and try and figure out where we can make a case and where the best cases can be made."
About 400 law-enforcement officers, including members of the Quebec provincial police, the RCMP, other police forces, customs agents and U.S. authorities, were involved in the operation.