Rice made more than 400 appearances for Arsenal, helping the club win their first league and FA Cup double in 1970-71, while he also won 49 caps for Northern Ireland.
Following his retirement from playing after a spell at Watford in 1984, Rice became a coach with the Gunners and then assistant to Wenger when he was appointed manager in 1996.
Rice, 63, played a part in two more doubles and the unbeaten league season of 2003-04 before announcing his retirement at the end of last season 48 years after first joining Arsenal.
Wenger said: "I am absolutely delighted because if someone deserves it, it's Pat Rice.
"He had 100 per cent genuine commitment every day and you respect that when you see that from somebody, and he is someone you could go to war with. You would love to be in the trenches with Pat and those are very difficult qualities to find in modern society.''
Rice greeted the news with shock and joy, saying: "I'm delighted and honoured to be receiving an MBE. The news of the award came as a complete surprise and I'm just so flattered to be included in the Queen's New Year's Honours List.
"Football and Arsenal have been my life and I have so many fantastic memories during my career. I have been lucky to have played and worked with so many great individuals, and through hard work I have enjoyed some success along the way.
"I would like to take this opportunity to thank everyone who has helped me throughout my career, and importantly, a special thank you to all my family, who have always been there for me and supported me throughout my career."
Sports honours were dominated by athletes, coaches and administrators involved in the London Olympic and Paralympic Games, but St George's Park chairman David Sheepshanks led the way among other sporting figures, receiving a CBE for services to football.
He oversaw the building of the National Football Centre near Burton-upon-Trent, which opened in October, while he was chairman of Ipswich for 13 years from 1995 to 2008.
Sheepshanks, who is also honoured for charitable services in Suffolk, was appointed chairman of the Football League in 1997 and has been involved with the Football Association, UEFA and FIFA.
Former England cricket captain and Kent president Mike Denness is awarded an OBE for services to sport 37-and-a half-years after his last Test match.
The 72-year-old, the only Scotsman to captain England, played 28 Test matches, scoring four centuries, and led his country on 19 occasions.
Denness, who later became an International Cricket Council match referee, was named president of the county for which he played for 14 years last December.
Among those to receive MBEs are two more recent England cricketers, Mark Ramprakash and Robert Croft.
Both men retired this summer after long careers in county cricket, with Croft playing for Glamorgan for 23 seasons and Ramprakash representing Middlesex and Surrey.
"This honour eclipses anything I have done in my career," Ramprakash said.
David Collier, the chief executive of the England and Wales Cricket Board, welcomed the honours for the trio.
He said: "The award to Mike Denness is fitting recognition for a long and distinguished career in cricket which has seen him fulfil a variety of key roles.
"Mark Ramprakash was among the most supremely gifted batsmen of his generation and can be justifiably proud of being one of an elite band of cricketers who have scored 100 first-class hundreds.
"Very few cricketers achieve the feat of scoring more than 10,000 first-class runs and taking more than 1,000 first-class wickets as Robert Croft did for Glamorgan during a 23-year career. His honour is richly deserved."
Also awarded OBEs are Catherine Caithness, president of the World Curling Federation, and John Sanderson for services to the horseracing industry.
The same honour goes to Amanda Reddin, the head national coach for British Gymnastics and personal coach to Beth Tweddle, Britain's most successful female gymnast.
Former Wales and Lions wing JJ Williams receives an MBE for services to rugby and charitable services in Wales.
The 64-year-old won 30 caps for his country between 1973 and 1979 and was selected for the iconic Lions tours in 1974 and 1977, playing in seven Tests.
Former St Helens and Great Britain star Paul Sculthorpe is recognised for his rugby league career and charity work while Colin Appleyard and Elizabeth Littler are also awarded MBEs for services to motorcycle sport and ice skating respectively.
Former Great Britain hockey player Tina Cullen receives the same award as does Andrew Thomson for services to bowls and James Gundill for services to horseracing.
Finally, Andrew Gairdner is also awarded an MBE following his retirement this summer as voluntary chief steward at Wimbledon after 34 years working at the All England Club.