The Gunners have confirmed the Germany international has penned a long-term deal until 2023.
He is expected to earn around £350,000 a week – a huge increase on his previous terms.
In a statement Arsenal wrote: “Congratulations Mesut – here’s to many more years of success.”
Mesut Ozil had been within six months of his contract ending and could have left Arsenal for free this summer.
The Germany international, signed from Real Madrid back in 2013, had been in contract talks with Arsenal for well over a year.
Alexis Sanchez’s contract was also running down at the Emirates but he chose to move to Manchester United in January, picking up a £500,000-a-week contract at Old Trafford.
Manchester United were also linked with a move for Ozil but the Red Devils opted against a bid in January.
The former Real Madrid player is also said to have alerted Barcelona heading into the winter transfer window.
However, Barca’s £142million deal for Philippe Coutinho ended that interest.
Ozil’s deal comes after a long and arduous transfer window for Arsenal.
They lost Sanchez but signed Henrikh Mkhitaryan in return, while Pierre-Emerick Aubameyang and Konstantinos Mavropanos.