The 24 year old was blasted to death at his home in Buncrana on February 9th last.
Mr Allen’s partner was also in the downstairs bedroom of the house at Links View Park when the killers struck and miraculously escaped with injury.
Today’s arrest is the second in recent weeks in connection with the brutal killing of the father of two.
Another man in his 50s was arrested on April 6th but was released without charge.
The so-called vigilante group, Republican Action Against Drugs, later claimed responsibility for Mr Allen’s death.
They claimed he was a drug dealer – a claim his family has always denied.
The man being quizzed at Buncrana Garda Station is being held Under Section 30 of the Offences Against the State Act, 1939
The arrest comes just days after Garda Inspector Pat O’Donnell issued a fresh appeal for information on the Vauxhall Cavalier car used in the assassination.
Inspector O’Donnell said their investigation was progressing but appealed for anybody who may have seen the car in the weeks leading up to the killing to contact them.