It was built up to be a potential title decider in the Premier League and, whilst there are still games to play, the consequences of the defeat for Mikel Arteta's side could be significant.
Manchester City took an early lead after Rayan Cherki scored.
Arsenal then had to respond and, to their credit, the Gunners hit back less than two minutes later. Kai Havertz capitalised on Gianluigi Donnarumma's hesitation on the ball and scored to level the scores.
The decisive goal came from Erling Haaland in the 65th minute.
Eberechi Eze hit the post for Arsenal and Havertz went close with a header late on but it finished 2-1 to Pep Guardiola's side.
Here are four takeaways from the game.
There are positives to take
Arsenal arrived at the Etihad Stadium knowing that the pressure was on them after a 2-1 defeat at home to Bournemouth on April 12 and an FA Cup exit on April 5.
Some were questioning their mentality and ability to deliver under pressure.
Whilst they did not get a positive outcome from the match, it could be argued that it was their best performance for a number of weeks.
There was not much between the two sides and they pushed City all the way.
They will not come up against sides with the quality of City every week and there may still be a belief that if they play like this in each of their remaining five games then they are capable of winning them all.
The Gunners remain top but there is a real risk that they lose that position this week when City play Burnley in their game in hand. They could then be level on points and level on games played.
At that stage, to win the title, Arsenal would need City to also drop points in at least one of their remaining games.
Therefore, whilst positives can be taken from the performance, it could still be a costly defeat and not one that brings immediate positives.
A physical game
Throughout the match there was an interesting battle between Haaland and Gabriel.
The Norwegian had the last laugh after scoring the winner but the two of them were battling it out all game.
There was also a moment when the Arsenal defender could have potentially been shown a red card. He put his head forward towards the striker and went to make contact with his opponent's head.
The referee did not send off Gabriel but it could have been a big moment in the match.
The players had previously clashed during the game at the Etihad in 2024-25 but Haaland has arguably now come out on top in both games.
It will be a relief for Arteta that his central defender avoided a three match ban at this crucial stage of the season.
Is the title race over?
There are still games to go and it would be wrong to write off either side.
However, the general feeling is that City are now in the driving seat.
They have the experience and the knowhow to get it over the line and that is what it would appear is lacking at Arsenal.
It may seem too simplistic to criticise their mentality and say that they are weak. However, questions will be asked if they do not get this one over the line.
Like in 2022-23, they have been top for almost all of the season and then right at the end it looks like they may concede their lead and be drawn into a straight fight to chase it down again.
The fact is that they have been top for 206 days yet City have led the way for just six days so far this season.
They have been in this position before and that may be the worry that history is about to potentially repeat itself.
What next for Arsenal?
The Gunners are into a UEFA Champions League semi final and, before that, they host Newcastle United on Saturday.
It is the first of two home Premier League games and they will be looking to respond to this setback immediately.
City do have a game in midweek but they do not play the following weekend due to their FA Cup participation so that could represent a chance for Arsenal to get a win and therefore put pressure on City's game in hand when it comes around.
The challenge for the Londoners is that they cannot let this defeat define them.
It may now be an uphill battle but they should not give in just yet. If they let the loss get them down and it impacts them mentally then they may find it tough to respond.
However, despite it not being easy, Arteta will want to use some of the positives and offer a belief that they can still compete and win.
If they converted some of their chances then they may have come away from the north-west with a draw and that may not have been a disaster.
A win would have certainly calmed any nerves.
There is possibly a feeling that anything other than a win in their next game and it would be a long way back.