The paintings were found undamaged and covered in plastic, leaning against a wall in a house on the outskirts of Sao Paulo after one of the suspects led authorities to the home, said Mauricio Lemos Freire, the city's chief police inspector.
At a press conference late Tuesday, police exhibited the paintings - Picasso's "Portrait of Suzanne Bloch" and Portinari's "O Lavrador de Cafe" - while two guards armed with assault rifles, pistols and bulletproof vests stood by. Portinari is one of Brazil's most influential artists.
Julio Neves, president of the Sao Paulo Museum of Art, said the paintings are "in absolutely perfect condition," and will be put on exhibition on Friday - the date of the museum's reopening. He said the paintings will hang in the same spots as before their theft on Dec. 20 by robbers armed only with a crowbar and a car jack.
"The museum is upgrading and improving its security system to prevent this kind of thing from happening again," Neves said, without elaborating.
Art experts estimate the value of the Picasso at about $50 million and the Portinari at $5-6 million.
Picasso painted "Portrait of Suzanne Bloch" in 1904 during his Blue Period. "O Lavrador de Cafe," which depicts a coffee picker, was painted in 1939 and is one of Portinari's most renowned works. Portinari (1903-1962) was a practitioner of the "neo-realism" style.
The two suspects in custody - Francisco Laerton Lopes de Lima and Robson de Jesus Jordao - have criminal records and took part in the theft at the Sao Paulo Museum of Art, Freire said. One of the men was arrested on Dec. 27 and the other on Tuesday.
Police said they would not reveal how they captured the two men because other suspects remain at large and providing details could jeopardize the ongoing investigation.
"It's obvious the two did not steal the paintings for themselves," Freire said. "They did it for someone else. The focus of the investigation now is to find out for whom."
The thieves broke into the museum just before dawn Dec. 20 as guards were changing shifts. Hazy images from a security camera showed three men using a car jack to squeeze inside a metal security gate, then smashing through two glass doors and running to the museum's top floor to grab the two framed paintings from different rooms.
The museum's security system had only a few cameras and guards patrolling the building's interior were unarmed. There were no alarms or movement sensors.
More than 69 people were questioned in the police investigation, authorities said.
The thieves ignored other important works in the Sao Paulo museum, including Pierre-Auguste Renoir's "Bather with a Griffon Dog," Vincent Van Gogh's "L'Arlesienne" and Henri Matisse's "Plaster Torso and Bouquet of Flowers." Instead they homed in on just the two paintings.
Local newspaper Folha de S. Paulo reported the museum's collection is worth more than $1 billion.
Earlier Tuesday, officials discussed ways to help the museum financially. Authorities said the museum may be eligible for about $4.5 million in funding from a law that promotes fiscal incentives to institutions that invest in culture.
Art thieves hit Brazil last year, when a gang used a carnival street parade to cover the theft of four paintings from a Rio de Janeiro art museum. Those works, valued at around $40 million, have never been recovered.