According to an agreement signed between both clubs, Arsenal will pay an initial £20m with the remaining £52m spread over the next five years due to their transfer restriction.
After completing his move, the 24-year-old Ivorian forward, who will wear the No 19 shirt, said: 'Being here is very emotional because it has not been easy for me. I have come a long way and struggled a lot and so signing for this great club is a big reward. It was important to make the right decision and I am convinced that Arsenal is the right choice.'
Arsenal boss Unai Emery added: 'Nicolas is a highly-rated and talented winger who was wanted by many of the top teams in Europe.
'Signing a top-class winger has been one of our key objectives in this transfer window and I'm delighted he's joining. He will add pace, power and creativity, with the aim of bringing more goals to our team.'
The big-money move for Pepe places him above Pierre-Emerick Aubameyang, who arrived from Borussia Dortmund for £56m in January 2018.
Last season, Pepe scored 23 goals in 41 games for the Ligue 1 side.
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