The Gunners were believed to have struck a deal that would have seen the 26-year-old sign on at the Emirates Stadium in the summer.
However, an injury to left-back Kieran Gibbs prompted the club to bring forward his arrival date.
"We are delighted that Nacho Monreal has agreed to join us. We have been monitoring him for some time now and are really pleased that we've been able to agree this move today," manager Arsene Wenger told the club's official website.
"Monreal is a strong left-sided defender with good experience at both club and international level. He is a technically gifted player, a good crosser in the final third and strong in the air.
"Monreal will add quality to our squad and of course, to our defensive unit. We all look forward to him playing for us."
Monreal has made nine appearances for the senior Spanish international team.