Cazorla has amassed 45 caps for Spain and was a member of the squads that won the European Championships in 2008 and this year. He has signed a 'long-term' contract at Emirates Stadium.
"Santi Cazorla is a great signing for us. He's a player who will add significant quality to our squad," said Arsenal manager Arsene Wenger.
Full name Santiago Cazorla Gonzalez, the 27-year-old was an influential figure in Malaga's fourth-place finish in La Liga last season when the club qualified for the Champions League for the first time.
"Santi has good experience at both club and international level," Wenger added.
"He's a versatile, attacking midfield player who can play comfortably on either side of the pitch or centrally.
"He has good pace, is technically gifted and will be a huge asset to us."
Cazorla, the 2007 Spanish Player of the Year, joined Malaga in 2011 following two stints with Villarreal.
He made 181 appearances for the Yellow Submarine, helping them finish runners-up to Real Madrid in La Liga in 2008.
"I'm so happy to be joining Arsenal. This is a club with great players, a fantastic stadium and huge support," Cazorla said.
"The club has one of the best managers in football and their style of play is recognised and admired all over the world.
"I'm so excited to be joining one of the greatest teams in Europe and to be playing in the Premier League.
"I will do my best to help Arsenal challenge for trophies and make all the supporters happy."
Arsenal confirmed that Cazorla has already linked up with his new-team-mates after being given permission by Malaga to join their pre-season training camp in Germany.
His arrival continues an impressive summer in the transfer window from the Gunners, who had already signed strikers Lukas Podolski and Olivier Giroud.
Turkey midfielder Nuri Sahin remains a target for Wenger, after the 23-year-old was told he could leave Real Madrid on loan, as does France youth international M'Baye Niang of Caen.
Reports over the weekend stated that Arsenal's transfer activity may have persuaded Robin van Persie to stay at Emirates Stadium, but his future remains shrouded in doubt.
To date Van Persie has refused to extend his contract, which expires next summer, with Manchester United and Juventus leading the chase after Manchester City boss Roberto Mancini admitted it is unlikely he will sign the Holland marksman.
Potentially making room for the influx of new arrivals in north London is Andrey Arshavin, who has been linked with a move to Turkish club Galatasaray.
