Merino, who has the option of extending for an additional year, joins the Gunners for a £27.4 million fee upfront with add-ons worth £4.2 million, according to reports.
The 28-year-old was a long-term summer target for Arsenal and moves to north London after being part of the Spain team which won Euro 2024.
"Mikel is a player who will bring us huge quality with his experience and versatility. He has played at the top of the game at both club and international level for a number of seasons now," Arsenal manager Mikel Arteta told the club's website.
"Mikel will make our squad significantly stronger, with his technical ability, together with his strong and positive character and personality.
"As we all saw in the summer, Mikel is also a winner, with his strong performances throughout the Euros helping Spain win the tournament. We are delighted to welcome Mikel and his family to the club and can’t wait to start working with him."
Merino becomes Arsenal's fourth signing of the transfer window after the permanent acquisition of goalkeeper David Raya from Brentford, Italy defender Riccardo Calafiori and Tommy Setford.
Merino has experience of Premier League football after spending one year at Newcastle in 2018 before joining Real Sociedad, where he made 242 appearances.
Formerly of Borussia Dortmund, Merino has 28 caps at international level for Spain and scored the winner in the Euro 2024 quarter-final against Germany.
