Willock has joined for a fee in the region of £25 million – the second-highest transfer fee paid in the club's history – and has signed a six-year deal on Tyneside.
The 21-year-old is The Magpies' first signing of the summer and ends head coach Steve Bruce's pursuit of the player who has been his number one target of the entire transfer window.
Willock rejoins the side where he became the youngest player in history to score in seven consecutive Premier League appearances, as part of an incredibly successful loan spell at the club last season.
He netted eight goals in 21 appearances and was named the Premier League's 'Player of the Month' for May, a feat that significantly helped Bruce's men to steer away from the threat of relegation.
The London born midfielder will once again wear the number 28 shirt at Newcastle, but will not be available for The Toon's season opener at St James' Park against West Ham on Sunday afternoon due to the club failing to hit the noon registration deadline.
Willock: 'I can't wait to step out in front of a packed St James' Park'
After signing on the dotted line, Willock said: "I'm buzzing to be here.
"I loved my time here last season and I'm really happy to be back and to be a Newcastle United player.
"Leaving Arsenal is obviously a big step, and I'd like to thank everyone involved with the club for all their support over the years, but this is the right move to the right club at the right time for me.
"I only got one chance to play in front of a smaller number of Newcastle fans as a home player last season, so I can't wait to step out in front of a packed St. James' Park and experience that atmosphere.
"Come on, you Maggies!”
Bruce: 'This is a move I know all the supporters really wanted us to make'
Newcastle boss Bruce added: "I'm absolutely delighted to secure our number one target.
"We have had to be patient and persistent, but it has been worth the wait to bring Joe back.
"I want to thank Lee Charnley in particular for the work he has put in to make the deal happen. The club have gone above and beyond to make it possible.
"Joe is a wonderful young player with all the attributes you want in a midfielder, and he certainly proved that during his time with us last season.
"This is a move I know our supporters really wanted us to make, and I know they will join me in giving Joe a very warm welcome back to St. James' Park."
The story behind how a fans' favourite returned to Tyneside
It was no secret that Newcastle made Willock their top transfer target heading into this window, with head coach Bruce regularly indicating to the media that the England U21 international was their top priority this summer.
However, bringing Willock back to the club where he was an overwhelming success on loan last season was always going to be a case of easier said than done.
Newcastle initially wanted to bring the 21-year-old back on loan again, but once they caught wind that Arsenal would only let him depart the club if it was permanently, owner Mike Ashley sanctioned the £25 million deal.
Bruce all but confirmed the signing of Willock this morning in his pre-match press conference, when he said: "He's having a medical as we speak so hopefully he'll be involved with us this afternoon.
"We've had to be patient – we knew Arsenal would have a look at him in pre-season.
"We explored the loan situation to begin with but have signed him permanently.
"We hope to get him registered by 12pm to play on Sunday.
"There were times, I'll be honest, I didn't think it'd happen. But credit to Lee [Charnley] – it's been worth the wait.
"My bosses always said if Joe became available, we'd sign him."
Once the transfer fee was agreed, Willock then had to agree personal terms with Newcastle – a process that ended up being drawn out right up until yesterday morning when the two parties eventually shook on a deal.
It was a race against time the following day in an attempt to get the transfer completed and register Willock as a Toon player with the Premier League before the Friday noon deadline so he could feature on Sunday afternoon.