Declan Rice avoided a controversial yellow card, and Real Madrid had a penalty overturned after a five-minute VAR review.
This means he will be available for the semi-final against PSG.
Rice, 26, was Arsenal`s key player in the first leg with two excellent free-kicks.
However, he was penalised in the first half of the second leg at the Bernabeu, conceding a penalty.
Rice briefly held onto Kylian Mbappe at the far post, and the French striker fell to the ground.
Referee Francois Letexier immediately pointed to the penalty spot and showed a yellow card to the English midfielder, who was clearly surprised by the decision.
After a long pause to check for both offside and a foul, the referee was asked to review it on the pitchside monitor.
Eventually, Letexier decided that no foul had occurred, cancelling both the penalty and the yellow card.
UEFA confirmed the decision with a brief statement.
They stated: “The penalty for Real Madrid was overturned due to no foul by Declan Rice.”
This was a major relief for Rice, who was aware that a yellow card in Madrid would suspend him for the first leg against PSG if Arsenal advanced.
Earlier in the game, Raul Asencio pulled Mikel Merino down off the ball during a corner.
Mikel Arteta slide tackles his own player in training a day before Arsenal’s biggest game of the season vs Real Madrid
Initially missed, the referee was alerted to stop play and watch the replay.
To the home crowd`s dismay, a penalty was awarded to Arsenal.
However, Bukayo Saka`s penalty was saved by Thibaut Courtois.
Saka opened the scoring in the 65th minute with a beautiful chip after a great team move.
But a mistake by William Saliba two minutes later allowed Vinicius Jr to reduce the lead.
Gabriel Martinelli secured a historic 2-1 away victory with a composed injury-time goal.
