The pair were neck-and-neck going into the final turn with the Briton 0.08 seconds ahead and as she pulled away, the USA athlete had no answer as Simmonds touched first in 5:19.17 to send the crowd wild.
Arlen, whose participation in the race was confirmed earlier in the day by the International Paralympic Committee (IPC) following a review of her classification status, finished well ahead of Song Lingling to take the silver medal, with the Chinese claiming the bronze.
Arlen said: 'It was very close. I didn't want to go out too fast, because I did that this morning and ended up kind of dying towards the end.
'I went out strong and managed to stay head-to-head throughout it. She just had the extra push at the end.
'I'm very happy with the outcome. I have a personal-best time and a silver medal. I couldn't ask for better in my first race in a big meet.'
Earlier, the evening session had begun in style with Andre Brasil swimming a new Paralympic record time of 56.35 to win the men's 100m Butterfly - S10 title ahead of Dmitry Grigorev of Russia.
Sophie Pascoe of New Zealand had set five world records before tonight, and she managed to break two more in the same race, the 100m Butterfly - S10 in 1:04.43, with the opening length a 50m record of 29.57.
Olesya Vladykina lowered her own 100m Breaststroke - SB8 record to 1:17.17 while Cecilia Camellini of Italy added the 50m Freestyle - S11 mark to the 100m she set last night in 30.94.
Yang Bozun set a new mark of 25.27 in the men's 50m Freestyle - S11 and Blake Cochrane of Australia dipped under his own 100m Breaststroke - SB7 mark in 1:18.77
Elsewhere, Darragh McDonald won the men's 400m Freestyle - S6, Andriy Kalyna claimed victory in the men's 100m Breaststroke - SB8, Brazilian Daniel Dias added yet more Paralympic success to his glittering career in the men's 200m Freestyle - S5, Sarah Louise Rung of Norway won the women's 200m Freestyle - S5 and Charles Bouwer took the men's 50m Freestyle - S13 title.
USA duo Kelley Becherer and Jessica Long were victors in the women's 50m Freestyle - S13 and women's 100m Breaststroke - SB7 respectively, while China's Yang Yang claimed the men's 200m Freestyle - S2 crown.