The 34-year-old brought an end to his playing days at the end of the 2015-16 campaign after admitting that he was no longer good enough to continue representing the Gunners.
Arteta did suggest that there was still an outside chance that he could join another club and prolong his career on the field, but he has now decided to take up a backroom role at the Etihad Stadium.
"Following recent media speculation surrounding my future I can confirm that I will be leaving Arsenal and retiring from playing to take up a coaching position at Manchester City," Arteta wrote on Twitter.
"I've enjoyed an amazing five years at Arsenal and it's been an honour and a privilege to captain such a great club.
"I am now looking forward to the challenge ahead at Manchester City. The opportunity to join Pep Guardiola and his team was an amazing opportunity for me and I am incredibly excited for the future."
Arteta joined Arsenal in 2011 after more than six years with Premier League rivals Everton.