The 21-year-old has already made 178 appearances for the Gunners.
The 21-year-old England international has scored 14 goals in all competitions this season as well as providing 11 assists.
Saka told the club website: “I’m just really happy. There’s been a lot of talking and it’s been a while, but I’m here now. I think this is the right club, the right place to make the next step. It’s a beautiful club – look where we are.
“For me, it’s about achieving my personal ambitions – how much I push myself and demand from myself each game, week in, week out. Then I have all the right people around me in terms of family, and when I come to the training ground, my team-mates, the coaching staff.
“I think I have everything I need to become the best player I can be, and that’s why I’m happy to stay here and be here for the future, because I really believe that we can achieve big things.”
Saka made his Gunners debut in November 2018 and has made 178 appearances in red and white.
He added: “I have seen a lot of change. I’ve seen this team and the club grow, and one thing that everyone around us can be excited about is that we are going in the right direction.
“Time is on our side. You can look at our team and a lot of the players are young. We’re hungry, and a lot of us haven’t won trophies at Arsenal so we want to achieve big things. If you watch the way we all speak, we want to win and we want to win here.
“It’s been too long since this club has had Champions League football. I’m really looking forward to Tuesday and Wednesday nights in this stadium, the atmosphere is going to be special.”
Saka joins goalkeeper Aaron Ramsdale in signing a new deal in the last few days.
Boss Mikel Arteta said: “It’s great for the club that Bukayo has extended his contract. Retaining our best young talents is key to our continued progress and Bukayo represents such an important part of our squad now and for the future.
“As well as being a fantastic talent, Bukayo is a special person, he’s loved by us all and he is a credit to himself and his family for the hard work and commitment they have all made to get to this level today.
“Together with our supporters, we’re so looking forward to enjoying Bukayo’s continued development with us in the years to come.”