The new charges come a month after Baggaley, who won two silver medals for Australia at the 2004 Athens Olympics, was told he cannot return to competition due to other pending drug charges after serving a two-year ban for taking steroids.
Baggaley, 31, and his brother Dru, 25, were arrested on Wednesday after an investigation into the manufacture and trafficking of MDMA, the chemical used to make ecstasy.
When they appeared in court on Thursday in Casino in northern New South Wales state, the brothers did not apply for bail and the magistrate, Annette Sinclair, said she would have refused it if they had asked.
They were remanded in custody and will appear in court again on Feb. 19.
Nathan Baggaley has been charged with manufacturing a commercial quantity of a prohibited drug, two counts of supplying a commercial quantity of a prohibited drug, possessing a tablet press and supplying a prohibited drug.
Baggaley's brother faces similar charges, including seven counts of drug supply.
Police said they seized 28,500 ecstasy tablets and a kilogram (2.2 pounds) of powder during a four-month investigation. They said the confiscated drugs were bound for the popular Gold Coast tourist area in Queensland state.
"We will allege these seizures will have a significant impact on the availability of illicit drugs, particularly in this region of New South Wales and on Queensland's Gold Coast," drug squad commander Greig Newbery said.
In July, the three-time world champion was committed to stand trial in Brisbane Supreme Court on drug charges after police found 762 ecstasy tablets in a car he was driving on the Gold Coast in February.
Baggaley tested positive to two steroids - stanozolol and methindione - in September 2005 and was subsequently banned for 15 months by the Australian Canoe Federation.
The suspension was extended to two years by the International Canoe Federation when it refused to consider that Baggaley tested positive because he had taken a drink from his brother's steroid-laced orange juice container.