Saliba will join the French club through the end of the season as the 19-year-old defender returns to France in search of first-team football.
The deal does not include an option to buy, as Saliba will return back to Arsenal at the end of the current campaign.
The teenager, who has featured for France up to the U-20 level, originally joined Arsenal from Saint-Etienne in July 2019 in a deal worth £27 million ($37m), spending the 2019-20 season on loan with his former club.
#OGCNice has been bolstered by the signing of central defender William Saliba, on loan from @Arsenal until the end of the 2020-21 season.— OGC Nice 🇬🇧🇺🇸 (@ogcnice_eng) January 4, 2021
Bienvenue William! 🔴⚫️
During that season he made 17 total appearances, having played a total of 36 games before making the move to England.
Having moved to Arsenal this season, Saliba has been unable to break into the Gunners first team, with the club opting not to register him for either Premier League or Europa League football this term.
“William Saliba is a player with a huge amount of talent and potential. We’re confident he will have a great career with us but we must remember that he is still only 19 years old and has a lot of time ahead of him,” said Arsenal technical director Edu.
“William experienced a very challenging time last year, with his playing time limited by injury and the early ending of the Ligue 1 season due to the pandemic.
“So together with William, we have decided that spending the rest of the season on loan with Nice is the best way for him to develop. We will be keeping in close contact with William during his time with Nice and look forward to seeing him make good progress until the end of the season.”
Arsenal currently sit 11th in the Premier League, having won three consecutive matches to relieve pressure caused by a seven-match winless run through the two months prior.
The Gunners are set to play host to Newcastle on Saturday in the FA Cup third round before then returning to Premier League play against Crystal Palace on January 14.
Nice, meanwhile, are currently 12th in Ligue 1, having moved on from manager Patrick Vieira in December.
The former Arsenal star was dismissed after a run of five consecutive losses in all competitions and elimination from the group stage of the Europa League.
Saliba could make his debut as soon as Wednesday as Nice take on Brest.