The 25-year-old Republic of Ireland captain joined the Gunners from Shelbourne in December 2015.
spell on loan with Glasgow City in 2017, has played 113 times for Arsenal to date, and helped them win the Women’s Super League in 2019.
This season she has produced 12 assists and scored four goals in 24 appearances for the club, who are currently third in the WSL.
McCabe said on Arsenal’s official website: “I’m absolutely delighted. I love this club and I feel like we’re in a really good place and that we’re ready to push on.
“I’m delighted it got done and now I’m ready to kick on and help this club win more trophies.”
Arsenal boss Joe Montemurro, who is leaving the club at the end of the season, said: “Katie McCabe is one of the highlights of the last three or four years here.
“She’s been thrown every challenge from the day that we brought her back from her loan, and I think she’s just developed into a world-class left-sided player.”
Arsenal, who described the new contract as “long-term”, said the deal was subject to the completion of regulatory processes.