Brazil's Neto, who previously played for Juventus, Valencia and Barcelona, has made 61 Premier League appearances for Bournemouth since joining the club in 2022.
"I'm realising a dream in my life, a dream come true, and I'm really, really happy," Neto said.
"I had two dreams as a kid to play for a football team. It was my team in Brazil, where I grew up and became a professional footballer, and also Arsenal. And now I'm realising it. I'm a really lucky person."
Neto will be Arsenal's backup goalkeeper with David Raya expected to be the first name on the team sheet for Mikel Arteta's side.
Last season's runner-ups Arsenal host Brighton & Hove Albion on Saturday but Neto will not be eligible to play in that game, with the 35-year-old set to join the squad next week.
