Lichtsteiner, who is the first signing of the Unai Emery's era at the club, will wear the number 12 shirt for the Gunners next season.
"Stephan brings huge experience and leadership to our squad," Emery told Arsenal.com.
"He's a player with great quality with a very positive and determined attitude. Stephan will improve us on and off the pitch."
Having secured his club future, Lichtsteiner will now compete at the 2018 World Cup with Switzerland. The 34-year-old captains his country and can now count Gunners midfielder Granit Xhaka as a club colleague as well as international.