The 24-year-old German international is regarded as one of the finest talents in Europe and arrives in London after three successful seasons in the Spanish capital.
Ozil completed his medical on Monday in Germany, where he is with the national squad, and Arsenal say he has signed a long-term contract.
The fee for Ozil has not been disclosed but a figure of £42.4m is being reported.
"I am thrilled to be joining a club of the stature of Arsenal and am looking forward to playing in the Premier League," said Ozil.
"It will be great for my own personal development as a player and I am particularly looking forward to working with (manager) Arsene Wenger.
"From our negotiations it is clear the club has huge ambition and I look forward to being part of an exciting future."
Wenger added: "We are extremely pleased to have signed Mesut Ozil.
"He is a great player, with proven quality at both club and international level. We have watched and admired him for some time, as he has all the attributes I look for in an Arsenal player.
"I have said throughout the summer that we have been working hard to bring in top quality players to this football club.
"This has involved many, many people across the club and I have always had the full support of the club in making decisions on the football side.
"Mesut is a top quality footballer who will be a fantastic addition to our talented squad. We are all looking forward to him joining up with us after his international matches with Germany and working with us as an Arsenal player."
The Gunners have been criticised in the past for not spending heavily in the transfer market but they have now splashed out on a player with 47 Germany caps, who became available after Real completed the world record signing of Gareth Bale from Tottenham.
Arsenal chief executive Ivan Gazidis said: "This is an exciting day for all of us. We have signed a world-class player who is one of Europe's brightest young talents.
"Mr Kroenke, our controlling owner, has always fully supported Arsene and the club in making significant investments to strengthen our squad and to bring in talented players, who fit our style and ambitions.
"Like all of us, Mr Kroenke wants to see Arsenal winning titles and trophies and he has absolute faith and belief in our manager to achieve that. We will continue to work towards that goal and look forward to an exciting season."
In related news, Manchester United finally secured the signature of Everton's Marouane Fellaini during the closing stages of transfer deadline day for £27.5m.
The 25-year-old midfielder had been linked with a move to Old Trafford throughout the summer and was the subject of a failed £36m joint-bid with left-back Leighton Baines.
Having been given permission by Belgium to delay joining up with the national squad ahead of their World Cup qualifier with Scotland, Fellaini handed in a transfer request late on Monday in a bid to push through the move.
One hour after the transfer deadline passed at 11pm, it was revealed that United had eventually secured their man after completing the necessary paperwork.
Everton boss Roberto Martinez has been unhappy with United's pursuit of his players and called the original joint bid for Fellaini and Baines as "derisory and insulting", but it will be good news for United boss David Moyes who is reunited with his former player.
Fellaini leaves Goodison Park having joined them from Standard Liege six years ago for £15m.
It was a positive conclusion to what was a rather frustrating transfer window for Moyes whose only other signing in the summer was full-back Guillermo Varela, while he failed to sign Athletic Bilbao's Ander Herrera amid suggestions imposters posed as United officials.
United had also targeted a late loan swoop for Real Madrid's Fabio Coentrao but there was no confirmation of a deal in the hours after the deadline and it is understood they may not have completed the paperwork in time.
Moyes has nevertheless insisted that he has total faith in the squad already at his disposal as he plots United's Premier League title defence after succeeding Sir Alex Ferguson as manager.
"From what I saw of the players, I'm more than happy with the players I've got," he said after United's 1-0 loss to Liverpool on Sunday.
Everton, meanwhile, will be pleased that they managed to hold on to Baines and were also able to bring in three new players on deadline day.
Midfielder James McCarthy was snared from Wigan Athletic, Romelu Lukaku joined on loan from Chelsea and a loan deal was also completed for Manchester City's Gareth Barry.
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