Sheehan, who was invited to attend the speech by Rep. Lynn Woolsey, D-Calif., was charged with demonstrating in the Capitol building, said Capitol Police Sgt. Kimberly Schneider. The charge was later changed to unlawful conduct, Schneider said. Both charges are misdemeanors.
Sheehan was taken in handcuffs from the Capitol to police headquarters a few blocks away. Her case was processed as Bush spoke.
Schneider said Sheehan had worn a T-shirt with an anti-war slogan to the speech and covered it up until she took her seat. Police warned her that such displays were not allowed, but she did not respond, the spokeswoman said.
Police handcuffed Sheehan and removed her from the gallery before Bush arrived. Sheehan was to be released on her own recognizance, Schneider said.
"I'm proud that Cindy's my guest tonight," Woolsey said in an interview before the speech. "She has made a difference in the debate to bring our troops home from Iraq."
Woolsey offered Sheehan a ticket to the speech - Gallery 5, seat 7, row A - earlier Tuesday while Sheehan was attending an "alternative state of the union" news conference by CODEPINK, a group pushing for an end to the Iraq war.
Sheehan, wrapped in a bright pink scarf against the cold, protested outside the White House with a handful of others before heading to the Capitol on Tuesday evening. There were no cameras around, but the small band faced the executive mansion and repeatedly shouted, "You're evicted! Get out of our house!"
Sheehan, of Berkeley, Calif., was arrested in September with about 300 other anti-war activists in front of the White House after a weekend of protests against the war in Iraq. In August, she spent 26 days camped near Bush's ranch in Crawford, Texas, where he was spending a working vacation.