The arrests took place after officers managed to get hold of some of the notes.
The suspects were taken in handcuffs to an apartment searched by police yesterday where dozens of fake euro notes were found.
The men, believed to be aged between 30 and 50, have not been named.
The suspects are expected to be hauled before a judge for their first court quiz after detectives have finished questioning them.
Civil Guard officers confirmed the arrests in a statement.
A spokesman for the force in Majorca said Local police covering the Calvia area – which includes Magaluf – had alerted them after confiscating five fake €20 notes from one of the suspects along with a small amount of cocaine and cannabis resin.
More counterfeit currency was discovered inside a safe in the room where he was staying.
Civil Guard officers subsequently searched a holiday apartment in Magaluf.
The spokesman said: “Forty counterfeit €20 notes were found in the holiday apartment along with €3,000 and £1,000 in legal tender which officers suspect could have been obtained through the introduction into the Local economy of the fake money.
“The false euros notes had been brought to Spain by the detainees from the UK so they could be used in the Magaluf area.”
He added: “The investigation is ongoing to determine if the fake currency has been used at other sites and further arrests haven’t been ruled out.”
Source : EXPRESS