The 26-year-old spent six years with the Gunners before joining Seattle Reign in the United States in 2013.
Little, the BBC Women's Footballer of the Year 2016, has also had a spell on loan in Australia with Melbourne City.
"Kim is one of the outstanding talents in the women's game," Arsenal Ladies boss Pedro Martinez Losa said.
"She will be a fantastic asset to our team as we prepare to challenge for the top honours in 2017."
Little will join Arsenal in January ahead of the 2017 campaign. The Gunners have not disclosed the length of her contract.
Women's Super League One side Arsenal Ladies have re-signed Scotland midfielder Kim Little on a long-term contract.