The Nigeria forward came through the ranks with the Gunners and is now just two appearances short of 100 having made his debut in 2015.
Iwobi, 22, scored three goals in 26 league games under Arsene Wenger last season and has now extended his stay at the Emirates Stadium.
The 27-year-old sustained an ankle injury last weekend but has been able to train ahead of the Wembley showpiece.
Kevin De Bruyne and Raheem Sterling are the only players not to return to the group after the World Cup, with manager Pep Guardiola planning to go on condition over quality.
Provisional squad: Ederson, Bravo, Hart, Walker, Danilo, Stones, Garcia, Otamendi, Kompany, Laporte, Mendy, Delph, Zinchenko, Gundogan, Fernandinho, D Silva, B Silva, Sane, Roberts, Mahrez, Bolton, Foden, Diaz, Nmecha, Jesus, Aguero.
The new deal extends his previous contract by two years.
The 21-year-old joined City in January 2017 and has since scored 24 goals in 53 matches.
He told the club’s official website: “I would like to thank the fans for the welcome and for how well they have treated me.
“I can say that it was the best decision I’ve made in my life to come to Manchester City because whilst I’m here I’m improving as a professional and as a person.”
More to follow…