Goal.com understands Walcott has signed a new three-and-a-half-year deal with the option of a 12-month extension.
Under the new agreement that runs at least until the summer of 2016, the England international's salary will climb to around 90,000 pounds a week, which will be bolstered by top-up bonuses and a multi-million pound signing-on fee.
Last week, it was revealed Walcott had held a final round of talks with boss Arsene Wenger and chief executive Ivan Gazidis at the club's London Colney training base, during which the main details were agreed.
Now it appears the 23-year-old has put pen to paper on a deal which will see his wages rise by at least 30,000 pounds-a-week, putting him on par with Arsenal's top earners.
Speaking to the club's official website, Wenger said: "We are all delighted that Theo has signed a new contract.
"He joined us as a 16-year-old and since then has developed very well to become an extremely important player for both Arsenal Football Club and England.
"Theo's contract extension now gives us a strong nucleus of ambitious young players who have committed to the club and want to be successful with us as a group."
Walcott himself added: "I am very happy to have signed a new contract here at Arsenal. Thanks to everyone for their continued support, especially the manager, everyone at the club and most importantly the fans."
He added, "I have made it clear from the start that I wanted to stay at Arsenal so I am pleased we have agreed a deal that everyone is happy with. What’s important now is for the team to realise its potential and win trophies."
Walcott has publicly indicated his desire to remain with the Gunners on numerous occasions, where he is popular with fans, staff and his team-mates.
A major stumbling block in talks had been the player's desire to be given the chance to ply his trade as a central striker in the wake of Robin van Persie's departure, but Wenger has granted his wish in recent weeks.
The Frenchman can now concentrate on improving his squad. Atletico Madrid striker Adrian and Wilfried Zaha are both likely targets, but Wenger has also this week admitted his interest in Napoli striker Edinson Cavani.
Securing Walcott's future will be a huge boost to Arsenal after tying fellow Brits Jack Wilshere, Alex Oxlade-Chamberlain, Kieran Gibbs, Aaron Ramsey and Carl Jenkinson to new five-year deals shortly before Christmas.