Police said authorities are questioning Lloyd Lee Welch, 57, also known as "Michael Welch," in connection with the kidnapping of the Lyon sisters on March 25, 1975.
On the day of their disappearance, Sheila Lyon, 12, and her sister, Katherine, 10, had gone to Wheaton Plaza (now known as the Westfield Wheaton Mall), police said.
Their mother told them to be home by 4 p.m. but they never returned, according to police.
"Sheila and Katherine were last seen just after 2 p.m., walking between Wheaton Plaza and their home, only half a mile away," police said. "They disappeared without a trace, and have not been heard from since."
Their older brother, Jay, was the last person to see the sisters, who were outside the Orange Bowl restaurant, The Washington Post reported.
Montgomery County Police said that Welch was "noticed paying attention to the sisters the afternoon they disappeared," in a statement Tuesday afternoon.
Since 1997, Welch has been in a Delaware prison, and he is a convicted sex offender, police said. He was charged with sex offenses against young girls in several states, according to police, who said there may be additional victims who have not yet come forward.
Welch traveled the United States "extensively" from the 1970s to mid-1990s, police said, noting he was a carnival ride operator whose job often had him working near malls.
Investigators declined to say how they connected Welch to the case but are asking for the public's help in putting the pieces together.
“We understand we’re asking people to think back several decades to remember details they may not think matter. However, the information you provide could be vital in our search for evidence, and put to rest difficult questions for the Lyon family and for any other victims who may exist," Steve Vogt, special agent in charge of the FBI in Maryland, said in a prepared statement.
“We have all been haunted by the disappearance of the Lyon sisters," Montgomery County Police Chief J. Thomas Manger said. "Even though so much time has passed, we have not forgotten that those young girls deserve justice, and their family deserves closure. We’re hoping one of you has information that will help us provide both."
Anyone who may have encountered Welch may call investigators at 1-800-CALL-FBI or can submit a tip online.