Saka has enjoyed a productive season for the Gunners and has been nominated for both the Premier League's best player of the season and young player of the season.
The 21-year-old England international has scored 14 goals and provided 11 assists across all competitions this term.
Saka's previous contract would have expired in the summer of 2024.
Although Arsenal missed out on the Premier League title in the final weeks of the campaign, Saka will play Champions League football for the first time next season, with the Gunners destined to finish second.
Saka joins the likes of Gabriel Martinelli and Aaron Ramsdale in penning new contracts at the Emirates Stadium recently.
"I'm just really happy," Saka told the Arsenal official website.
"There's been a lot of talking and it's been a while, but I'm here now. I think this is the right club, the right place to make the next step. It's a beautiful club - look where we are.
"For me, it's about achieving my personal ambitions; how much I push myself and demand from myself each game, week in, week out. Then I have all the right people around me in terms of family, and when I come to the training ground, my teammates, the coaching staff.
"I think I have everything I need to become the best player I can be, and that's why I'm happy to stay here and be here for the future, because I really believe that we can achieve big things."