Patricia Arce of the governing Mas party was handed over to police in Vinto after several hours.
It is the latest in a series of violent clashes between government supporters and opponents in the wake of controversial presidential elections. At least three people have died so far.
A group of anti-government protesters was blocking a bridge in Vinto, a small town in Cochabamba province in central Bolivia, as part of their ongoing demonstrations following the presidential election on 20 October.
Rumours spread that two opposition protesters had been killed nearby in clashes with supporters of the incumbent president, Evo Morales, prompting an angry group to march to the town hall.
The protesters accused Mayor Arce of having bussed in supporters of the president to try and break a blockade they had set up and blamed her for the reported deaths, one of which was later confirmed.
Amid shouts of “murderess, murderess” masked men dragged her through the streets barefoot to the bridge. There, they made her kneel down, cut her hair and doused her in red paint. They also forced her to sign a resignation letter.
Ms Arce was eventually handed over to the police who took her to a local health centre. Her office was set alight and the windows of the town hall were smashed.