The England forward's deal was due to expire at the end of the season with rival clubs queueing up to try and sign the 23-year-old on a free transfer.
Since arriving at the club from Southampton back in 2006, Walcott has become an international regular and scored 56 goals in 244 appearances, and his deal is reported to commit him to Arsenal until the summer of 2016.
Walcott said: "I am very happy to have signed a new contract here at Arsenal.
"Thanks to everyone for their continued support, especially the manager, everyone at the club and most importantly the fans.
"I have made it clear from the start that I wanted to stay at Arsenal so I am pleased we have agreed a deal that everyone is happy with. What's important now is for the team to realise its potential and win trophies."
Boss Arsene Wenger added: "We are all delighted that Theo has signed a new contract. He joined us as a 16-year-old and since then has developed very well to become an extremely important player for both Arsenal Football Club and England.
"Theo is a strong player and also a great person, and the combination of his ability and pace always make him such a valuable asset either from the flanks or down the middle.
"Theo's contract extension now gives us a strong nucleus of ambitious young players who have committed to the club and want to be successful with us as a group."
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