Having come through Arsenal's academy, Iwobi made his first-team debut in 2015 and went on to make 148 appearances, scoring 15 goals.
Iwobi, the Arsenal's player 23-year-old midfielder signed a five-year contract deal at Goodison Park.
After a deal was agreed between the clubs on Deadline Day, with Everton paying £28m up front, there was an additional fees of £7m.
Everton's late move for Iwobi came as they failed in their pursuit of Crystal Palace winger Wilfried Zaha, but Toffees boss Marco Silva has insisted the Nigeria international had always been on his wish list.
Iwobi is now Everton's seventh and final signing of the summer transfer window.
He has followed the additions of goalkeeper Jonas Lössl, right-back Djibril Sidibe, midfielders Andre Gomes, Fabian Delph and Jean-Philippe Gbamin, and striker Moise Kean.
Iwobi could make his Everton debut when they begin their Premier League campaign away to Crystal Palace on Saturday.
Everton had an initial bid of £30m turned down but their improved offer an initial £28m, rising to £34m with potential add-ons - was accepted.
Iwobi featured regularly last season under manager Unai Emery, appearing in all but three Premier League games.
He scored in the Europa League final defeat by Chelsea in what was his last appearance for the club.
There was increased competition for Iwobi's position at Arsenal following the arrival of Nicolas Pepe from Lille for a club record £72m.
Iwobi now begins a new chapter of his career at Everton, as the Toffees target an improvement on last season's eighth-place finish.
In an attempt to do that, Silva has reshaped his squad over the summer with seven arrivals and nine permanent departures.
