Malen, 18, joins the Dutch giants on a three-year deal and returns to his native country after three years with the Gunners.
The former Ajax Amsterdam youngster failed to make his first-team debut but was included in the Gunners pre-season squad this season.
Nonetheless, the lure of potential first-team action has attracted the Netherlands youth international back to his country of birth.
“Malen is highly regarded in London as a talented forward who can play as a striker or as a winger,” read a statement on PSV’s official website. “He represented the Netherlands at U15, U16, U17 and U18 level.
“He is currently in Finland to compete in a four-nation tournament with the Netherlands U19 squad, along with his new PSV team mates Justin Lonwijk, Mike van de Meulenhof, Armando Obispo, Jordan Teze and Joël Piroe.”