The Frenchman departs a year before his latest contract was due to expire. but leaves behind one of the great records in football with the Arsenal Club.
Wenger won three Premier League titles and seven FA Cups, including the Double in 1998 and 2002.
Arsenal majority shareholder Stan Kroenke described todays announcement as “one of the most difficult days we have ever had in all our years in sport”.
He added: “One of the main reasons we got involved with Arsenal was because of what Arsene has brought to the club on and off the pitch.
“His longevity and consistency over such a sustained period at the highest level of the game will never be matched.”
The American praised Wenger’s “exceptional record”, adding that he “transformed the identity of our club and of English football with his vision for how the game can be played”.
Appointed on 1 October 1996, he is the Premier League’s current longest-serving manager and has taken charge of a record 823 games.
But some fans have turned on the Frenchman over the past two seasons as a result of their league performances.
They are 33 points behind leaders Manchester City, who have 87 points, and the same number away from bottom side West Brom, who have 21.
Arsenal finished outside the top four last term for the first time since Wenger arrived at the club, and are now 14 points behind fourth-placed Tottenham, with five matches remaining.