Chief James White told reporters at a press conference later Tuesday that police have identified a suspect but did not release his name. He was arrested shortly after the press conference was over.
The banquet hall, which is located on the city's east side and had not been licensed to operate since 2013, came under a hail of bullets around 2 a.m.
The deceased victim was a 27-year-old man, FOX 2 reported. He was bound to a wheelchair from a previous shooting, according to the station.
Two men and three women were being treated for non-life-threatening injuries, White said. More than 100 people were gathered for an event at the banquet hall at the time of the shooting.
"Preliminary evidence suggests that this was an exchange of gunfire from people both at the location as well as the perpetrator who shot into the location," White said. "This was some type of conflict between the two parties involved. This was not a random shooting."
"Later this afternoon, we'll be working with the Buildings and Safety Division of the city of Detroit and we'll be shutting down that business," he said.
About four years ago, about half a dozen other people were wounded and one person was slain during a shooting at the same location, White added.
"We've got some problems with this business," he said. "It's a problem for our community. We're not saying incidents can't happen, but it's the responsibility of the ownership of the business to make sure that they put the necessary security provisions in place to make sure that these things don't happen."
The Associated Press contributed to this report.