Rice made more than 400 appearances for Arsenal, helping the club win their first league and FA Cup double in 1970-71, while he also won 49 caps for Northern Ireland.
Following his retirement from playing, Rice became a coach with the Gunners and then assistant to Wenger when he was appointed manager in 1996.
Rice, 63, played a part in two more doubles and the unbeaten league season of 2003-04 before announcing his retirement at the end of last season, 48 years after first joining Arsenal. Wenger said: "I am absolutely delighted because if someone deserves it, it's Pat Rice."
The Frenchman added: "He had 100% genuine commitment every day and you respect that when you see that from somebody, and he is someone you could go to war with. You would love to be in the trenches with Pat and those are very difficult qualities to find in modern society."
Rice greeted the news with shock and joy, saying: "I'm delighted and honoured to be receiving an MBE. The news of the award came as a complete surprise and I'm just so flattered to be included in the Queen's New Year's Honours List.
"Football and Arsenal have been my life and I have so many fantastic memories during my career. I have been lucky to have played and worked with so many great individuals, and through hard work I have enjoyed some success along the way.
"I would like to take this opportunity to thank everyone who has helped me throughout my career, and importantly, a special thank you to all my family, who have always been there for me and supported me throughout my career."
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- Pat Rice