After a goalless first half at the Olympic Stadium, the Blues started the second 45 minutes on a flying note with Olivier Giroud breaking the deadlock in the 49th minute before Pedro and Eden Hazard stretched the lead in the 60th and 65th-minute respectively.
With Unai Emery's side trailing 3-0, Iwobi was brought on for Lucas Torreira in the 67th minute. Two minutes later, he justified his introduction with a stunning effort from outside of the penalty area.
Though, there was no comeback as Hazard quickly compounded Arsenal's woes with his second goal of the night, coming in the 72nd minute.
Gabon's Pierre-Emerick Aubameyang was in action for the entire duration of the match but could not find his finishing touch late on.
The defeat means Arsenal will play in the Uefa Europa League next season after finishing fifth in the English Premier League.
The Super Eagles will be aiming for their fourth Afcon title in Egypt next month. They have been paired against Guinea, Madagascar and Burundi in Group B.