Five people needed hospital treatment after taking what they thought was the class B drug mephedrone, a police spokeswoman has said.
Doctors at the North Tees General Hospital admitted four men and a woman from the Hardwick area of Stockton, Teesside, who had become unwell yesterday.
Four of them have since been discharged and the other man was in a stable condition.
Cleveland Police said the people who fell ill believed they were buying the class B drug mephedrone, sometimes known as MCAT.
Detective Inspector Steve Young said: "I would like to reassure Stockton residents that we have a dedicated team of officers working on this in a bid to trace the source of the substance that these people have taken.
"We do have three people in custody and we will be questioning them today as our inquiries continue."
Mephedrone has been linked in reports to a number of deaths since its emergence as a party drug three years ago.
It was initially sold as a legal high but was criminalised in 2010.