The 21-year-old enjoyed an outstanding loan spell with the Magpies between January and May 2021, scoring eight goals in just 14 Premier League appearances to help Steve Bruce's side to a 12th-placed finish last season.
During his initial stay on Tyneside, he also became the youngest player ever to score in seven consecutive Premier League matches - a sequence he will now get an opportunity to extend in a black and white shirt having agreed a long-term deal.
"I'm buzzing to be here," Willock told nufc.co.uk. "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!"
Newcastle United head coach Steve Bruce, said: "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."
Joe Willock will wear the number 28 shirt for the 2021/22 season - the same squad number he occupied last season.
The club can confirm that he will be available for selection for next week's Premier League match against Aston Villa.