On 2 January 1981, Sutcliffe was stopped by the police with 24-year-old prostitute Olivia Reivers in the driveway of Light Trades House in Melbourne Avenue, Broomhill, Sheffield. A police check by probationary constable Robert Hydes revealed his car had false number plates and Sutcliffe was arrested and transferred to Dewsbury Police Station. At Dewsbury he was questioned in relation to the Yorkshire Ripper case as he matched many of the known physical characteristics. The next day police returned to the scene of the arrest and discovered a knife, hammer and rope he had discarded when he briefly slipped away from the police after telling them he was "bursting for a pee". Sutcliffe hid a second knife in the toilet cistern at the police station when he was permitted to use the toilet. The police obtained a search warrant for his home at 6 Garden Lane in Heaton, Bradford, and brought his wife in for questioning.
He pleaded guilty to seven charges of attempted murder. The prosecution intended to accept Sutcliffe's plea after four psychiatrists diagnosed him with paranoid schizophrenia, but the trial judge, Justice Sir Leslie Boreham, demanded an unusually detailed explanation of the prosecution reasoning. After a two-hour representation by the Attorney-General Sir Michael Havers, a 90-minute lunch break and another 40 minutes of legal discussion, the judge rejected the diminished responsibility plea and the expert testimonies of the psychiatrists, insisting that the case should be dealt with by a jury. The trial proper was set to commence on 5 May 1981.
The Attorney General, Sir Michael Havers QC, at the trial in 1981 said of Sutcliffe's victims in his opening statement: "Some were prostitutes, but perhaps the saddest part of the case is that some were not. The last six attacks were on totally respectable women." This drew condemnation from the English Collective of Prostitutes, who protested outside the Old Bailey. Nina Lopez, who was one of the ECP protestors in 1981, told The Independent forty years later, Sir Michael's comments were "an indictment of the whole way in which the police and the establishment were dealing with the Yorkshire Ripper case".
Following his conviction and incarceration, Sutcliffe chose to use the name Coonan, his mother's maiden name. He began his sentence at HMP Parkhurst on 22 May 1981. Despite being found sane at his trial, he was diagnosed with paranoid schizophrenia. Attempts to send him to a secure psychiatric unit were blocked. While at Parkhurst he was seriously assaulted by James Costello, a 35-year-old career criminal with several convictions for violence. On 10 January 1983, he followed Sutcliffe into the recess of F2, the hospital wing at Parkhurst Prison, and plunged a broken coffee jar twice into the left side of Sutcliffe's face, creating four wounds requiring 30 stitches. In March 1984 Sutcliffe was sent to Broadmoor Hospital, under Section 47 of the Mental Health Act 1983.