He is the first member of the new-look coaching staff to be officially announced with the remainder of the staff to be revealed shortly.
Arteta, whose official title will be Assistant Coach, started life with Barcelona’s junior sides before spending time on loan with Paris St Germain and eventually joining Glasgow Rangers.
He stayed at Ibrox for two years before returning to Spain with Real Sociedad, but after just one season, headed back to the UK, this time with Everton.
He stayed at Goodison Park for seven years, playing more than 200 games for the Toffees, leaving for Arsenal in 2011.
Arteta, 34, made close to 150 starts for Arsene Wenger’s side, but left at the end of last season after accepting an offer to take up his first coaching role.
Commenting on a “new chapter” in his career, Arteta said: “Following recent media speculation surrounding my future I can confirm that I will be leaving Arsenal and retiring from playing to take up a coaching position at Manchester City.
“I’ve enjoyed an amazing five years at Arsenal and it’s been an honour and a privilege to captain such a great club.
“Throughout my career I have been interested in more than just the playing side and have had a passion to develop and progress the team outside of my own role as a player.
“Coaching has been something I’ve always been keen to go into and I’ve worked hard off the pitch as well as on it to develop my skills in order to put me in a position to be able to pursue a coaching role once I finished playing.
“I’ve been lucky enough to work under some amazing coaches during my career and I hope to use the elements of everything I’ve learned from them as well as my own playing career to help City achieve success.
“I am now looking forward to the challenge ahead at Manchester City. The opportunity to join Pep Guardiola and his team was an amazing opportunity for me and I am incredibly excited for the future.”
Arteta's arrival is the second big announcement of the weekend following the news England Under-19s coach Lee Carsley has been named as the new City Under-18s manager, with Jason Wilcox moving to the new role of Head of Coaching (Academy).