Mesut Ozil and Granit Xhaka also signed new deals this year, but Aaron Ramsey's future remains in doubt as the Welshman has so far refused to accept an offer from the Gunners as he enters the final year of his deal.
Head coach Unai Emery hinted last month Iwobi was close to agreeing new terms and the Nigeria worldwide has now put pen to paper.
"It's always been my childhood dream to represent Arsenal, from young", Iwobi told Arsenal media during his signing presentation.
He joined Arsenal when he was under 6 years of age and has been at the club for 16 years.More news: Protests continue in Iran for fifth day as United States sanctions loom
"To get an extended contract is an fantastic feeling and I hope I'm doing the Arsenal family proud, as well as my family".
"I think we are very close to being at 100 per cent".
"It's not just myself and family, I represent the younger generation as well".
"The first kit that I had was Arsenal and long may I continue to represent them".More news: Thousands of firefighters struggle to contain giant blazes in California
The Spanish coach even ordered Iwobi to cut short his holiday by one week so he could travel with the team to their pre-season tour of Singapore.
These are exciting times for Wolves as they gear up for their first season back in the Premier League since 2012 and they are still looking to strengthen their squad if newspaper reports on Sunday are to be believed.
Also a Nigeria global, having recently represented the Super Eagles at the World Cup, the attacker has five goals in 21 appearances for the national team.
He spent two years at Arsenal's development centre before signing and moving to Hale End when he was nine. Since his debut has Iwobi made 98 appearances for the club.More news: Apple's Market Cap Hits $1 Trillion