In 2016, Arsenal spent £35m to sign Xhaka from Borussia Monchengladbach and the midfielder has gone on to score seven goals in 94 outings for the Gunners.
Xhaka has failed to win over a section of the Emirates Stadium crowd, but that has not stopped the North London outfit giving the player a fresh contract.
Manager Unai Emery told the club's official website: "I'm delighted that Granit has extended his contract with us. He's an important member of the squad and is still young so will be able to develop even more.
"I hope he has a successful World Cup with Switzerland and comes back fit and ready for the new season."