The fee paid agreed between the Gunners and West Ham for the England midfielder eclipses the £100m Manchester City paid for Jack Grealish two years ago and also breaks Arsenal’s record for a new signing.
Rice, 24, moves for an initial £100m fee with £5m agreed in add-ons, following long-running negotiations to determine the exact structure of the payments.
The deal marks the highest fee ever received by West Ham, who signed the Londoner as a teenager after he was released by Chelsea.
Arsenal have already forked out £65m for Kai Havertz this summer along with a £38.5m deal for Jurrien Timber from Ajax.
Timber joined on Friday afternoon following a delay to his announcement while Rice’s move was reportedly held up by the Hammers waiting for their London rivals to send the final paperwork to complete the deal.
West Ham are expected to use the money earned from Rice’s sale by bolstering their midfield in particular, with Fulham’s Joao Palhinha a top target.
