Stina Blackstenius' 102nd minute goal means that Arsenal advance to the Conti Cup final where they will face either Chelsea or West Ham United.
It was a very close affair on a cold night in Borehamwood, but the Gunners finally were able to see off the Cityzens after a number of chances went begging in regular time.
Jonas Eidevall opted to include all his new signings in the starting eleven, with Kathrine Kühl, Victoria Pelova and Sabrina D'Angelo all featuring.
Blackstenius finally broke the deadlock after fellow Swedish international Lina Hurtig was able to slide it into her path three minutes into extra time.
Arsenal and Man City will play each other in the lunchtime kickoff on Saturday in the WSL, so it was a good chance for both managers to gain tactical insight as the Gunners aim to challenge for the title.
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Story of the match
The first opportunity fell to the Gunners, with Kühl sliding in Laura Wienroither one-on-one with Sandy MacIver. The Austrian's effort was cooly saved by MacIver to prevent an early lead.
Having arrived from AFC Ajax last month, Victoria Pelova controlled the midfield, switching play from left to right with Katie McCabe and Wienroither available on both flanks operating as wing-backs.
However, Manchester City did show signs of breaking through Arsenal's defensive line with Alanna Kennedy's long ball over the top locating Lauren Hemp, who attempted a lob over Sabrina D'Angelo. The effort was tame and D'Angelo was able to catch the ball with ease and rally the Arsenal fans into singing her name.
Chloe Kelly was next to strike on target for City. The England international cut in from the right, and the low-drilled effort heading for the bottom left corner tested D'Angelo. The Canadian international number one prevailed again, saving and retaining the ball.
Chances for Frida Maanum and Caitlin Foord to break the deadlock came as Arsenal increased the tempo with ten minutes left in the half. Captain Kim Little came closest to hitting the back of the net in the first 45, gliding past a sea of sky blue shirts and driving her effort wide of the target.
Foord almost immediately opened the scoring after the interval if not for the linesman's offside flag, slicing her shot onto the crossbar.
But it was City who gained momentum. Kelly's corner routine was splitting apart Arsenal's defence, and their successive set-pieces were to no avail as chances for Kelly and Fillipa Angeldahl were blazed over.
Substitute Lina Hurtig's first opportunity in the 65th minute was one that any striker would be dreaming off. The Swedish international was presented with the ball around six yards out, but clipped her effort onto the crossbar.
Some excellent defensive work by Rafaelle Souza denied the visitors from taking the lead, blocking Kelly from a strike at goal twice.
But with only five minutes left of normal time did Eidevall's side start to mount the pressure, Hurtig simply having to prod the free header towards goal from Foord's cross but it was agonisingly wide.
It seemed that the Gunners finally had the edge when Sandy MacIver dropped the ball off a cross and Blackstenius was ready to pounce. However, a melee in the box mean that the 26-year-old couldn't get the final touch and steal the game in the final moments.
Ironically, in a game which lacked clinicality, Arsenal finally broke the deadlock two minutes into extra time. Hurtig rolled the ball from the left into the feet of Blackstenius, who this time slotted it past MacIver. Stina's goal made Meadow Park erupt, after 102 minutes of near-misses and wasted opportunities.
But City were still present to add a twist to the game. Midfielder Deyna Castellanos really should've done better when she failed to hit the target with a volley in plenty of space.
Gareth Taylor's side were still fighting with two minutes to go. The Cityzens came within inches of levelling the game but Hayley Raso couldn't get on the end of a deep cross and D'Angelo collected the ball under immense pressure.
Arsenal were able to see off the final minutes of this narrow affair and will play either Chelsea or West Ham in the final of the Conti Cup at Selhurst Park.
But both sides will turn their attention back to the league with Arsenal and Manchester City both meeting again in three days but up north at the Academy Stadium in a massive clash between two titans in the WSL, as demonstrated in this enthralling clash.