Smith Rowe attracted interest from Aston Villa after a decent run of form last season but Arsenal rejected two bids from the Lions.
The England Under-21 player will wear the number 10 shirt for the upcoming season for Mikel Arteta's squad.
After tying down the 20-year-old who had just two-years left on his current contract, Arteta, Arsenal boss said;
"As we all saw last season, Emile is an intelligent player with excellent ability,” Arteta said.
“His sharpness on the turn and exceptional vision have already made him a key player for us. His attitude and willingness to learn have also been very impressive.
"Huge credit to our team in our academy who have given Emile a great education and have worked superbly to help with his development through the age groups."
Club technical director Edu believes the contract extension for Smith Rowe is a good step for the club.
"This is another important step forward for us and we're all delighted that Emile has signed a new long-term contract," said Arsenal technical director Edu.
"It's great to see another young player develop through our academy system to become a key part of our first team.
"Emile is a player who represents the future of the club and this is why we have given him the number 10 shirt.
"We have trust in Emile and we know he has the potential to be a beautiful player for many years to come."
As an academy product of Arsenal, Smith Rowe spent loans at RB Leipzig and Huddersfield Town.
Smith Rowe racked up two goals and four assists in 20 Premier League games last term.
