Pepe, who was signed by Arsenal in 2019 for a reported fee of 72 million pounds ($85.18 million) from Lille, has struggled to justify his price tag, scoring 27 goals in 112 matches for the Premier League club.
The winger is a regular for Ivory Coast but has failed to establish himself in Arsenal manager Mikel Arteta's starting line-up, often coming on only as an impact substitute.
Pepe has a contract with Arsenal until 2024 and Nice said they do not have a purchase option to make the transfer permanent.
Pepe had a good record in Ligue 1 with Lille, scoring 37 times in 79 appearances. In his final season at Lille, he scored 22 goals and contributed 11 assists in the league.
He did not play in any of Arsenal's three league matches this season, all of which Arteta's side won to top the table. Nice are 16th in Ligue 1 without a win in three games.
