The defender joins the club from Melbourne City after previously playing for Melbourne Victory, Portland Thorns, Orlando Pride and OL Reign.
Catley has proven herself on the international stage and has 82 appearances for Australia since making her debut as an 18-year-old.
Now 26, the full-back is vice-captain of the Matildas and her arrival is a major coup for Arsenal Women as they bolster their squad.
“We’re privileged to have Steph at the club,” said head coach Joe Montemurro.
“She suits our fluidity and she’s very good in a positional sense, but more importantly she’s very effective going forwards, so we’re excited to have her as part of the squad and we’re looking forward to some exciting times together!”
Catley has won the W-League Championship five times and W-League Premiership twice and is joining Arsenal Women in the hope of winning further honours.
“This is something that I’ve been looking forward to for a long time,” said Catley, speaking exclusively to Arsenal Digital.
“Arsenal is a place where I’ve imagined myself playing for a long time too.
“I’m so excited that it’s finally done. This will be my first taste of European football and obviously there’s so much to look forward to and so many big occasions to come. I can’t wait to get started.”