Gunners manager Unai Emery, who previously worked with Monchi at the Spanish club, had reportedly been keen to see the 50-year-old installed at the Emirates Stadium.
Monchi, who has a long association with Sevilla stretching back to his playing career, was available after leaving his role as director of football at Italian club Roma earlier this month.
A statement from the LaLiga outfit read: "Sevilla FC and Monchi have come to an agreement for the San Fernando native to return to the post he left two years ago – sporting director of Sevilla Football Club."
Monchi, a goalkeeper, made 115 appearances for the Rojiblancos before taking up the administrative role after his retirement.
He held the post of sporting director for 17 years, a period during which the club won 11 trophies, before stepping down to pursue other opportunities.
Five of those successes were in the Europa League, three of which came in succession under the guidance of Emery.
He had a strong reputation for player recruitment with the likes of Dani Alves, Julio Baptista and Seydou Keita being bought and sold at huge profit. Youth stars such as Sergio Ramos, Jose Antonio Reyes and Jesus Navas also came through his system.
He was unable to replicate that success at Roma and left the Italian club following the recent sacking of Eusebio Di Francesco as head coach.
Arsenal are looking to make an appointment after the departure of Sven Mislintat as head of recruitment in February.