The 27-year-old man, who was not named, was taken into custody Wednesday in the northern town of Strande after refugees who survived the horrific voyage recognized him, a spokesman for the prosecutor's office in nearby Kiel told AFP.
He said the suspect allegedly belonged to a group of people-smugglers trying to bring a group of 320 asylum seekers to Greece from Turkey by boat.
However several of the potential passengers refused to board the vessel on the grounds that it looked unsafe, leading the smugglers to "force them at gunpoint".
While at sea, one of the smugglers allegedly handed the wheel to an asylum seeker and the boat sank within an hour.
Fifty-four people perished, having had "no chance" of reaching shore, the spokesman, Axel Bieler, said.
Prosecutors believe the 27-year-old was key in organizing the deadly journey.
"He arranged the contacts, he put together the logistics with his accomplices," Bieler said.
The suspect, who himself came to Germany in 2015 and applied for asylum, has received a limited residence permit along with his wife and child.
In a hearing before a judge after his arrest, he denied the charges against him, Bieler said.
He faces between three and 15 years in prison if convicted.
Migration to Europe soared in 2015, as people desperate to flee the worsening conflicts in Syria, Iraq and Afghanistan risked their lives attempting the dangerous crossing.
Germany took in nearly 900,000 people that year alone.
Its courts have recently convicted several people-smugglers as part of a wider crackdown.
Last week, two Romanian men were handed prison sentences in the southern city of Passau for putting the lives of hundreds of asylum seekers at risk while transporting them at the height of the 2015 influx.
In a separate case in the southern town of Traunstein, three alleged people-smugglers went on trial last week accused of bringing hundreds of refugees to Germany in late 2015 and early 2016.
At least six children drowned in the illicit boat crossings from Turkey to Greece.