The Premier League outfit proved uninspired from the off at the Philips Stadion, and had already seen Cody Gakpo and Xavi Simons have goals disallowed by the time Joey Veerman fired the host into the lead.
Half-time substitute Luuk de Jong added a second as PSV pressed home their advantage, dealing Arsenal its first defeat of its UEFA Europa League campaign.
The Gunners will now need to beat Zurich next week to be assured of top spot in its group, while Friday's result follows on from a disappointing Premier League draw at Southampton on Monday, leading Arteta to demand a reaction.
"It's the end of a long run," he said. "Today is the first defeat at the end of a long, long period.
"It's time to reset, it's time to analyse what happened. We were nowhere near our level today, especially in the way we competed.
"Obviously, congratulations to PSV, they were the better team and they deserved to win the game, there's no question about that."
PSV produced a strong defensive display as Arsenal fail to hit the net for the first time in their last 17 European away games, having won 11 of their previous 16.
Meanwhile, the Gunners suffered just their second defeat in their last eight trips to Dutch opponents (W3 D3) – the other loss also came at PSV, in a Champions League last-16 match in February 2007.