The German international's current deal runs out in the summer, with intense speculation over the past few months linking Ozil with a move either overseas or to rivals Manchester United.
However, German newspaper Bild now reports that the 29-year old will sign a new three-year contract, worth around £300,000 per week, after being impressed with the ambition shown in signing Dortmund striker Pierre-Emerick Aubameyang.
Aubameyang is reportedly finalising the details of a £55m switch from the Bundesliga club, having scored 21 goals in all competitions this season.
It is understood that Ozil is keen to link up with the Gabon international, and that his signing is a key factor in his decision to stay with the Gunners.
Although that deal is believed to be close, sources indicate that a deal to bring Aubameyang to the club will not be completed until the German outfit sign a replacement. They have been linked with Arsenal striker Olivier Giroud, as well as out-of-favour Chelsea striker Michy Batshuayi.
News of Ozil's new contract will come as welcome relief for Arsenal fans, as they continue to digest the loss of star player Alexis Sanchez to rivals Manchester United.
He left the Emirates Stadium in a swap deal involving Armenian international Henrikh Mkhitaryan, who made his Gunners debut in last night's 3-1 defeat at Swansea.