Goals from Gonzalo Higuain and Jose Callejon either side of a Mikel Arteta red card gave the Italians the win, but Borussia Dortmund's win at Marseille means that the Germans top Group F and join the Gunners in the next round.
Here, Sports Mole takes an in-depth look at an intriguing 90 minutes of European football in Naples
On target 7
On target 2
Was the result fair?
Over the course of the 90 minutes, yes. Arsenal were coasting at the break and looked to be comfortably heading through as group winners. However, Napoli turned on the style after the break and hammered the Arsenal goal with shots. It really was a game of two halves, but Napoli deserved the win all overall.
They were sent into the break a heavily frustrated team as they failed to get through Arsenal's seemingly-impenetrable defence. But they came back stronger and dominated the second half and got the win they deserved, yet they were still knocked out and left heartbroken.
Mind-boggling stuff from Arsenal. They were defensively solid in the first half in a fairly even contest, but were really put up against it after the break. They continued to look solid and defend well, but eventually Napoli's pressure paid off and condemned Arsenal to defeat. Not their best by any means, but it was just enough in the end.
Sports Mole's man of the match
Jose Callejon: The former Real Madrid man came alive in the second half when he was moved into a central position. He provided a good pass to set up Higuain's opener, before brilliantly chipping Wojciech Szczesny for the second. He continued to create chances and threaten the Arsenal backline throughout the second half and was probably the best player on the field.
It may have been harsh to result in a second yellow card, but Arteta's tackle from behind on Callejon was stupid. The last thing the Gunners needed having gone a goal behind was for their captain to hurl into a silly and needless challenge. He should have known better, and really left his side with a mountain to climb.
Viktor Kassai didn't have the greatest of nights. He got a fair amount right, but it was his inconsistency that let him down. He was almost goaded into handing Arteta a second yellow by the home crowd, when just giving a foul would have been the right decision. It was a silly thing to do from the Arsenal man, but he was sent off having committed two fouls all night, while Valon Behrami and Dries Mertens were guilty of far more, but only the later was cautioned.
Napoli: The Italians will turn their attention to Serie A when they host Inter Milan on Sunday.
Arsenal: The Gunners travel up North for a huge match in the Premier League at Manchester City.