She was performing at Sirens, a strip club in Columbus, when she allowed someone in the crowd to touch her.
But Daniels' lawyer, Michael Avenatti, has tweeted that he believes the arrest was a set up and politically motivated. She is facing three counts of "Illegally Operating Sexually Oriented Business - Employee Knowingly Touch Any Patron", according to online court records. Two other people were arrested at the club, but it is unclear who they were.
Daniels was arrested at a club in Columbus, Ohio while performing an act she has done at almost 100 strip clubs across America, Michael Avenatti wrote on Twitter. "We will fight all bogus charges", Avenatti said on Twitter.
An Ohio law known as the Community Defense Act proscribes anyone touching a nude or semi-nude dancer, unless they are related.
Avenatti told The Post the arrest was a politically motivated "sting operation".
"It was an absurd use of law enforcement resources", Avenatti said.
'A customer touched her in a non-sexual manner and she was subsequently arrested for allowing the customer to touch her in a non-sexual manner, ' he said.
Columbus police have not confirmed any arrest, and neither have Siren's Gentlemen's Club.
Messages were left with the Columbus city prosecutor's office seeking comment.
He later tweeted that he expected Daniels to be released on bail "shortly" and charged with a misdemeanour for "touching".
A spokesman for the Franklin County sheriff's office could find no instances in which the 2007 law had been used, he told the newspaper.
"As a result of what happened last night, I will unfortunately be unable to go forward with tonight's scheduled performance", Daniels said in a statement through Avenatti on Twitter.
Earlier this year, Daniels made a bombshell allegation that she had sex with Trump in 2006, when he was married.
Trump's spokespersons have denied the affair.
Cohen allegedly paid Daniels $130,000 to keep quiet about her sexual encounter with Mr. Trump.
Trump admitted in May that he reimbursed Cohen for the payment, although he said at the time he did not know what it was for.