Substitute Cole Palmer fired City ahead with a wonderful strike in the 77th minute with a left-foot curler into the top corner from the edge of the box.
Pep Guardiola made three changes from our final match of our preseason Asia Tour against Atletico Madrid with Ortega Moreno and Akanji recalled while new signing Mateo Kovacic made his official debut.
Last season’s Premier League runners-up Arsenal had a number of new faces, starting their three summer signings Declan Rice, Jurrien Timber and Kai Havertz.
It was Rodrigo, who unforgettably scored the final goal of last season’s Treble in the Champions League final and twice he almost grabbed the first of the new campaign.
In the 13th minute his low drive deflected inches past the post before an audacious effort shortly before half-time with a looping effort from the halfway line that had Aaron Ramsdale’s frantically scampering back before the ball landed on the roof of his net.
Before that, City had enjoyed much of the possession in the first half with Julian Alvarez dragging another effort wide although it was Ortega Moreno who was the first keeper called into serious action in the 25th minute.
After Gunners’ full-back Ben White broke clear, he fired over a low cross that picked out Havertz but his turn and shot was blocked by Ortega Moreno’s legs and John Stones bravely took Gabriel Martinelli’s follow-up in the stomach.
Arsenal’s new striker was then denied again by his German compatriot when he tried to turn in Bukayo Saka’s low cross.
City were back on the front foot after the restart with John Stones’ powerful header from a corner pushed away by Ramsdale.
And there were more positives as the fans welcomed back De Bruyne for his first minutes since being forced off through injury in the Champions League final.
But it was just a sighter from the winger, who picked up the ball in a similar position to curl a delicious left-foot strike into the top corner with De Bruyne claiming his first assist of the new campaign.
Fellow City Academy graduate Foden almost double our advantage moments later but his low shot clipped the inside of Ramsdale’s legs and deflected inches wide before the England keeper kept out a Rodrigo header from the following corner.
With new injury rules, there was a total of 13 minutes of added-on time and Arsenal equalised 11 minutes into that, when Trossard's shot deflected in off Akanji.
With no extra time, the game went to straight to a shootout and Martin Odegaard, Trossard, Bukayo Saka and Fabio Vieira were all successful from the spot for the Gunners.
Arsenal’s late leveller was particularly tough on Palmer who was denied a starring performance after producing the moment of outstanding quality when it mattered.
In a game that did not provide too many opportunities, his superb effort gave Ramsdale no chance as he curled it brilliantly into the top corner.
The 21-year-old, who replaced Erling Haaland midway through the second half, became the youngest player to score in the Community Shield since Cesc Fabregas for Arsenal in 2005.
But supporters will have to get used to these new extended periods of injury time which have been ushered in under new guidance.
“We were close. We were good for 25-30 minutes, in the last 15 or 20 minutes of the first half they were better. They had two chances and Stefan did well.
“But second half we were much, much better. We played a really good second half. Our energy from the new players especially players in one- on-one situations, players like Phil, Kevin and Cole.
“We were close but at the end, we couldn't do it and their penalty takers were better than us.”
COLE PALMER REACTION
"Obviously disappointed to concede in the last minute and then penalties. But that's football. We dug in deep. It is what it is.
"We played well. It's the first official game of the season, so it's about momentum building and stuff.
“Of course, scoring at Wembley for the club you've been at since the age of seven, is a proud moment.
"But it doesn't count for much at the end of the day, but obviously it's a nice feeling."
ARSENAL XI: Ramsdale, White, Saliba, Gabriel (Smith Rowe 87), Timber (Tierney 76), Partey, Rice (Nketiah 81), Odegaard (c), Saka, Martinelli (Trossard 75), Havertz (Fabio Vieira 87).
Subs: Turner, Tomiyasu, Kiwior, Holding.
What it means
City miss out on the Community Shield for the third season in a row following defeats to Leicester City and Liverpool in the last two years.
The defence of our Premier League title and bid to win it for a fourth successive year begins on Friday night at 20:00 (UK) when we travel to Turf Moor to face last season’s Championship winners Burnley.
Managed by City legend Vincent Kompany, it is sure to be a noisy and challenging start following the Clarets return to the top-flight.
Then on Wednesday, 16 August we have the chance to add more silverware when we play in the UEFA Super Cup for the first time, facing Spanish side Sevilla in Athens at 20:00 (UK).
Our first game at the Etihad Stadium is the following Saturday when we play Newcastle United, also at 20:00 (UK).