She was arraigned before the anti-corruption court in Nairobi on abuse of office and tax evasion charges.
Judge Mwilu, the second highest judge, was charged alongside Stanley Muluvi Kiima, an advocate.
The two face a total of 13 charges to monies allegedly received from collapsed Imperial Bank.
Justice Mwilu had been arrested at about 2pm local time at the Supreme Court.
The Director of Public Prosecutions Noordin Haji said there was evidence that she had abused her office for personal gain and accepted money as a gift in dubious circumstances.
She is also accused of failing to pay taxes and executing a security belonging to the Imperial Bank, which collapsed in 2015, under false pretences.
“This afternoon, I informed Chief Justice David Maraga of my decision to grant consent for the arrest and prosecution of the deputy chief justice, Lady Justice, Philomena Mbete Mwilu, on criminal charges,” Mr Haji told journalists.
“This decision has not been taken lightly,” he added, saying “the dignity and independence of the judiciary is dear to us.”
Mr Haji issued a warning to judges and investigators who, “use their position to enrich themselves at the expense of the Kenyan people.”
Justice Mwilu is one of seven members of the Supreme Court, and was among the judges who nullified President Uhuru Kenyatta initial election win in August 2017, leading to the controversial holding of a fresh vote.
She was appointed to the Supreme Court in 2016 and shot into the limelight for her role in annulling the President’s poll win.
In October, Mwilu’s bodyguard was shot and killed the day before the Supreme Court was to hear a petition to postpone the re-run.
As a result, Mwilu did not attend the hearing and the lack of a quorum meant the election went ahead unchallenged.
Mr Haji said her arrest was part of an ongoing crackdown against corruption, which has seen several high-ranking officials hauled into court, a rarity in graft-wracked Kenya whose citizens rarely see justice done.
“Many other cases are under investigation … and Kenyans should expect fresh investigations and prosecutions on a regular basis,” he added.
Asked by a journalist whether Mwilu’s prosecution was related to Kenyatta’s threat to “fix the judiciary” after the annulment of his initial election, Haji insisted the decision was independently taken.
“We are an independent institution and we are not being directed by anyone or by any statements given out there, this decision was made independently of all other matters and factors,” he said.
Justice Mwilu was released on a personal bond of Ksh5 million ($50,000) and ordered to appear before the court on Wednesday at 9am local time together with her co-accused Stanley Muluvi.