The NL Central champions began talking to Arroyo about an extension near the end of last season, when they made the playoffs for the first time in 15 years. The Reds were swept by Philadelphia in the first round.
The 33-year-old right-hander won a team-high 17 games last season. The Reds exercised their $11.5 million option for 2011 and continued work on adding two more years. The deal includes deferred money through 2021.
Given their nucleus of young players, including MVP Joey Votto, the Reds expect to be contenders again.
"We've got a young team," Arroyo said. "I've got an opportunity to do some stuff that I didn't have an opportunity to do my first few years here."
Arroyo has been the Reds' most reliable starter. He has made at least 32 starts and pitched at least 200 innings in each of his last six seasons. He's 70-60 with a 3.97 ERA in five seasons with the Reds.
The Reds declined to pick up a 2011 option for right-hander Aaron Harang, leaving Arroyo as their most accomplished starter heading into next season.
"I'm just happy to be back," he said. "You become comfortable with your teammates and it becomes family instead of moving from team to team. It's nice to be in a place for a long time like that."