Guendouzi started his career at the Paris Saint-Germain academy before joining Lorient’s academy in 2014.
He is a France youth international, having represented them at under-18, under-19 and under-20 level.
Arsenal manager, Unai Emery said: “We are delighted Matteo is joining us. He is a talented young player and a lot of clubs were interested in him.
“He has big potential and gained good first-team experience last season with Lorient.
“He wants to learn and improve and will be an important part of our first-team squad.”
Arsenal had on Tuesday completed the signing of Uruguay international midfielder Lucas Torreira from Sampdoria.
The 22-year-old completed his medical at Arsenal’s London Colney training base on Tuesday before the club announced the deal for an undisclosed fee.