An Uber spokeswoman said the driver was "deactivated" as soon as the allegations were made.
She said drivers undergo full criminal background checks, and the driver in question had no criminal history.
The man has been released, pending summons and is expected to be charged with sex and unaccredited driving offences.
Victorian Taxi Association chief executive David Samuel said it had long been warning the community about the dangers of unregulated taxi services.
"We appreciate that there is the potential for incidents to occur across all service types, but it is unacceptable that illegal services be allowed to continue in the face of outcomes such as this," he said in a statement on Monday.
"It is now time for the platitudes and rhetoric to end and for the Taxi Services Commission, via its commissioners, to take strong and decisive action on illegal ride sharing and to ensure all commercial transport service providers are operating within the law."
- AAP