Details of a fee remain undisclosed - though reports suggest €11 million - but the Liga side have confirmed the Brazilian has signed a five-year deal with a termination clause of €80 million.
Valencia, who will present the defender to the media on Saturday, confirmed Gabriel's contract runs until 2022.
"We would like to thank Gabriel for his contribution to the club and to wish him well for his return to La Liga with Valencia," an official Arsenal statement read.
The 26-year-old defender joined Arsenal for €15m during the 2014-15 campaign after a successful two-season run at Villarreal. Prior to that he spent multiple seasons in Brazil's top division with Vitoria.
Gabriel made 64 appearances in all competitions during his two-and-a-half years in north London. However, he had fallen behind Shkodran Mustafi and Rob Holding in the pecking order in defence after struggling to make a breakthrough over that time. He was even left out for Arsenal's Premier League opener against Leicester City, despite left-backs Nacho Monreal and Sead Kolasinac starting in a back three for that contest.
The Brazilian could make his Valencia debut at the Santiago Bernabeu when Marcelino's side take on Real Madrid in La Liga on August 27.