The gunman was named as James Edward Bess, 49, who was expelled from the order three years ago. He is in custody, receiving medical treatment after being beaten up by a crowd who witnessed the shooting on the steps of an auditorium at the University of California in Riverside, 50 miles south-east of Los Angeles.
Mr Muhammad, 43, was shot from close range when a gunman, wearing the Nation of Islam's customary uniform of a dark suit and bow-tie, burst from the crowd and fired five or six shots from a 9mm pistol.
A few moments before, Mr Muhammad had completed a two- hour speech to 500 students. He was wounded in the legs and last night his condition was stable. Two bodyguards and a bystander were hurt, one of them seriously.
Although the circumstances remain unclear, tensions have been running high between followers of the Nation and Jewish groups, who have long been the target of the Islamic group's rhetoric. Just before the attack, a member of the extreme right-wing Jewish Defence League had been escorted out after lambasting Mr Muhammad from the floor.
Immediately after the attack, as the crowd pounced on Mr Bess, there were shouts of 'he works for the Jews'. Several Jewish leaders quickly issued statements denouncing both the shooting and Mr Muhammad's racist politics.
The attack comes several months after Mr Muhammad, once deputy leader of the Nation of Islam, was suspended from the organisation after a speech in which he called Jews 'the bloodsuckers' of the black community, described the Pope as a 'no-good cracker', and urged blacks to kill all whites in South Africa.
His words made national headlines, and were denounced by President Clinton and by mainstream black political leaders. Louis Farrakhan, the Nation leader, ignited further indignation by saying he agreed with the thrust of Mr Muhammad's message, but not the way he said it. Since then Mr Muhammad has been growing in popularity, prompting speculation that Mr Farrakhan sees him as a challenge to his leadership.
The Nation of Islam has a history of bitter feuding and internal rifts. The most famous example came in 1965, when Malcolm X was shot dead in New York after splitting with the Nation's then leader, Elijah Muhammad. Three Nation of Islam members were convicted of his murder.
In 1972, there was a three-hour shoot-out which began in one of the Nation's mosques in New York. The following year there were allegations that the order was involved in the killing of seven members of the Hanafi Islamic sect, including five children, who were murdered in Washington.
The Nation has never won much recognition by the black political establishment, but it has gained thousands of members among young blacks, who feel abandoned by mainstream leaders. The order vigorously opposes drugs and alcohol, and preaches economic self-help.