He is accused along with his son, Bello Abba Mohammed, of diverting $1.5m (Â£1m) that was meant to buy arms for soldiers fighting Islamist Boko Haram militants.
The two men have pleaded not guilty.
President Muhammadu Buhari, who took office in May, set up an investigation into the procurement of weapons for the military which found that phantom contracts worth $2bn had been awarded.
Last month, former national security adviser Sambu Dasuki was arrested and charged with 19 counts of fraud, money laundering and criminal breach of trust in connection to the case.
Mr Dasuki, who oversaw the fight against Boko Haram while Goodluck Jonathan was president, denied the charges.
Bello Haliru Mohammed served as Mr Jonathan's defence minister from 2011 to 2012 and still holds a senior position in the opposition People's Democratic Party (PDP).
He appeared at the Abuja High Court on Tuesday in a wheelchair and was transferred to a hospital when the case was adjourned, the Economic and Financial Crimes Commission (EFCC) said.
His son was remanded in prison until a bail hearing on Thursday.
Boko Haram has killed thousands in north-eastern Nigeria in its six-year campaign to create an Islamic state.
Soldiers had complained that despite the military's huge budget, they were ill-equipped to fight.
The soldiers have reported that they are better equipped since President Buhari came into office, but the previous president's supporters say this is because those weapons were ordered while Mr Jonathan was in power, says the BBC's Abuja editor BBC's Bashir Sa'ad Abdullahi.

Orica-Scott rider Yates, 24, started Sunday second overall but climbed off with 75km of the 210km stage remaining.
Slovak Sagan won an uphill sprint to take his second victory of the race, ahead of France's Thibaut Pinot, who also moved second overall behind leader Nairo Quintana of Colombia.
Geraint Thomas was fourth on the stage.
The British Team Sky rider is now up to sixth overall, with two stages remaining.
Overall standings after stage five:
1. Nairo Quintana (Col/Movistar) 21hrs 34mins 51secs
2. Thibaut Pinot (Fra/FDJ) +50secs
3. Rohan Dennis (Aus/BMC) +1min 06secs
4. Primoz Roglic (Slo/LottoNL) +1min 15secs
5. Tom Dumoulin (Ned/Sunweb) +1min 19secs
6. Geraint Thomas (GB/Team Sky) +1min 23secs
7. Rigoberto Urán (Col/Cannondale-Drapac) +1min 30secs
8. Jonathan Castroviejo (Spa/Movistar) +1min 32secs
9. Bauke Mollema (Ned/Trek-Segafredo) +1min 37secs
10. Simon Spilak (Slo/Katusha-Alpecin) +1min 59secs

The 24-year-old forward, who never made a first-team appearance for the Reds, has been without a club since leaving Scottish side Kilmarnock last year.
Ngoo had loan spells with Hearts, Yeovil Town and Walsall during his time with Liverpool, before leaving Anfield in the summer of 2014.
He is eligible to make his debut for the Ravens against Chester on Saturday.
Former Nigerian defence minister Bello Haliru Mohammed has been charged with money laundering.
[NEXT_CONCEPT]
World champion Peter Sagan won stage five of Tirreno-Adriatico in Italy as Britain's Adam Yates abandoned the race because of illness.
[NEXT_CONCEPT]
National League side Bromley have signed former Liverpool youngster Michael Ngoo.