The right-back becomes the Gunners' second signing of the January transfer window, following Pablo Mari's loan move from Flamengo.
"Cedric is a defender with good experience of the Premier League and of course at international level," technical director Edu told the club's official website.
"He is another strong addition to our defensive unit who will provide our squad with quality."
Cedric has made 120 Premier League appearances since moving to England in 2015, scoring one goal and registering 11 assists.
The 28-year-old has 33 caps for Portugal and was part of the team that won UEFA Euro 2016.
Arsenal are next in Premier League action at Burnley on Sunday 2 February.