The 18-year-old German has made 14 appearances for the Gunners during the current campaign, and he scored his first goal for the club in a 2-1 win over Swansea City back in September.
Despite admitting that it is difficult adapting to the pace of the Premier League, Gnabry is enjoying life at the Emirates Stadium.
"I am very happy with how this season has gone," he told the club's official website. "I am a very young player, so to be alongside all these top players, in a squad with massive potential, has been really good. I have been involved in most of the games so I am very happy.
"It makes you a better person. I have grown up a lot since I came from the youth team, and it is a good experience to be playing, training and learning from all the top players here.
"It is very tough to play in the Premier League, you have to be at a constant level - both physically and mentally. You have to prepare for the games and be spot on in them, so really that is the biggest challenge for me."
Arsenal continue their Premier League campaign on Sunday when they face Everton at Goodison Park.