Gnabry, 18, has made his full Premier League debut and scored his first goal in the division already this season, after fleeting cameos for the club last campaign.
The former Stuttgart player joined Arsenal in 2011, spending two seasons playing for the club's youth sides before his promotion to senior level at the start of this season.
Thus far, he has been involved in the club's matchday squad for eight of nine Premier League fixtures this campaign, as well as three Champions League ties.
Manager Arsene Wenger is quoted as saying of his young star's new contract:
We signed Serge Gnabry because I believe that he will be a great player. He's nearly there now, and competes for a regular place in the team in the Premier League.
He has technical ability, he has power, he has pace, he has finishing quality and he can give a final ball. He's a powerful offensive player and I believe that he will be a great player for Arsenal Football Club.
For his part, Germany youth international Gnabry added:
Arsenal is a great football club and I’m so happy to be here and sign a new contract. For me, now it’s all about working hard and developing my game.
I’ve had some good opportunities recently in the first team, which has given me extra confidence, and this will only improve my game. I’m looking forward to giving my best for this club in the years to come.
A wide midfielder, Gnabry has made terrific progress over the past 12 months to push himself to the fringes of the first-team squad—aided by an injury to Alex Oxlade-Chamberlain.
With pace in abundance, excellent ability with the ball at his feet and an intelligence to his play that belies his age, it is easy to see just why the Gunners have been so quick to tie him down for the foreseeable future.
Alongside Mesut Ozil and Lukas Podolski, Gnabry is part of a growing group of German attacking players at the club.
Add in Per Mertesacker in defence, as well as youngsters Gedion Zelalem and Thomas Eisfeld, and it would appear that the country's influence at the Emirates Stadium is set to stay in place for sometime yet.
Of all his countrymen at the club, it would appear thus far that it is Gnabry who has the best chance of reaching the levels of Ozil as a truly world-class talent, although Zelalem's initial steps at senior level have been promising.
Such is his talent that Arsenal have moved quickly to ensure that Gnabry will not be plucked away anytime soon, with the player having only signed his first professional deal last year.
There can be no risk-taking with a player of Gnabry's potential, and Wenger's willingness to push the youngster into the first-team setup would suggest he is keen to make the winger the next big young star of his Arsenal reign.