Kieron Dyer returned from a seven-month absence to score the goal which eases pressure on boss Glenn Roeder and seriously dents Arsenal's title hopes.
Dyer is congratulated after opening the scoring
The midfielder put Newcastle ahead when he collected Obefami Martins' flick-on and curled a shot into the corner.
Newcastle repelled waves of attacks before substitute Thierry Henry curled in a superb free-kick past Shay Given.
Henry was inches away from scoring a winner when his effort was deflected on to the post by Scott Parker.
The Frenchman was also denied by some excellent goalkeeping from Given.
The Newcastle stopper was back in the line-up after two months out and was in inspired from, making tremendous stops throughout.
He was at his very best in the second half to deny Henry twice and Cesc Fabregas as Newcastle came under intense pressure.
Roeder's side were desperately defending a lead which had been given to them totally against the run of play on the half hour.
Dyer showed little rustiness when he expertly finished his side's only chance of the half.
Arsenal had had numerous opportunities to break the deadlock before that but Emmanuel Adebayor, Alexander Hleb could neither hit the target nor beat Given.
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Robin van Persie looked the likeliest to drag Arsenal back on level terms and was inches away with a curling shot after a superb turn in the area.
But the Dutchman suffered an ankle injury late on the first half and was unable to continue.
That meant Henry was forced into action at the start of the second half - and how Arsenal were desperate for inspiration.
Until that point, the Gunners searched in vain for a goal and had been guilty of over-playing.
The initially nervous-looking Titus Bramble began to play with a degree of calm in defence, while Nicky Butt snapped in the midfield.
Arsenal, for all their personnel in that area of the pitch, were failing to exert their authority.
And Julio Baptista, making his first start in the absence of Gilberto Silva, looked exactly like the bit-part player he has been since his arrival at Arsenal.
Newcastle continued to battle, and with the help of the outstanding Given, managed to withstand an Arsenal onslaught as the hosts finally found their rhythm.
But then Henry produced a moment of exquisite skill when he crashed in a curling free-kick off the underside of the bar.
It was always going to take something special to beat Given in this mood.
And despite some intense efforts thereafter, Arsenal failed to do it again - which leaves their title ambitions virtually in tatters.
Roeder, though, may have been given a reprieve.
Arsenal manager Arsene Wenger:
"Newcastle played and defended well but We did not score in the first 20 minutes and gave a soft goal away.
"Then we created lots of opportunities and gave a great performance but we cannot give goals away the way we did.
"This side has great potential but we are still a bit young in some areas of our game and you could see that today."
Newcastle boss Glenn Roeder:
"The returning players, Kieron Dyer and Shay Given, were excellent. They played their part in what was a terrific team performance.
"We knew there would be long spells when we had out backs to the wall but we had belief that we come cone ghere and achieve a good result.
"We showed skill, belief and I thought the defence did very well today."
Arsenal: Lehmann, Eboue, Toure, Gallas, Clichy, Hleb, Fabregas, Julio Baptista (Walcott 64), Flamini, Van Persie (Henry 46), Adebayor.
Subs Not Used: Almunia, Senderos, Song Billong.
Booked: Fabregas, Gallas.
Goals: Henry 70. Newcastle: Given, Taylor, Bramble, Moore (Sibierski 89), Ramage, Solano (Milner 74), Butt, Parker, Duff (N'Zogbia 86), Dyer, Martins.
Subs Not Used: Harper, Rossi. Booked: Duff, Taylor, Bramble, Given, N'Zogbia.
Goals: Dyer 30.
Ref: M Atkinson (W Yorkshire).