PSV Eindhoven 1 Arsenal 0
Ecuador midfielder Edison Mendez drilled home the only goal of a dull encounter midway through the second half as Arsene Wenger's side struggled to get out of first gear.
After a slow start Cesc Fabregas, who endured a dreadful match, dallied on the ball and lost possession in a dangerous position, but Jens Lehmann was alert to the danger and raced off his line to save the young Spaniard's blushes.
Three minutes later Tomas Rosicky suddenly found himself free inside the area, but his left-footed shot was parried by PSV keeper Heurelho Gomes and Carlos Salcido completed the clearance.
But that was as close as the Gunners would come to scoring in the entire 90 minutes.
In the 18th minute Philippe Senderos could not direct his header from Fabregas' corner on target while at the other end Phillip Cocu tested Lehmann with a 30-yard drive.
Just after the half-hour Rosicky curled a delicious effort from the edge of the area inches wide with Gomes beaten and Thierry Henry's volley from near the penalty spot was saved by the PSV keeper's legs.
Then, on the stroke of half-time Henry beat Cocu before curling a shot just wide with Gomes beaten.
Arouna Kone wasted a great chance to give Ronald Koeman's side the lead in the 55th minute when he beat Arsenal's offside trap, but his mis-hit shot dribbled wide when he should really have done much better.
However, just six minutes later Mendez scored the crucial goal when the 27-year-old's powerful shot from outside the area beat Lehmann and flew into the corner of the net.
Arsenal were unable to respond as PSV's defensive web frustrated them time and time again.
Indeed, it was the Eredivise leaders who came closest to adding to their lead in the closing stages with William Gallas being forced to save another Mendez effort with the Gunners defence spread-eagled.
Fabregas forced Gomes to make a fine stop and substitute Julio Baptista's free-kick was saved by the PSV shot-stopper - despite a fumble - as the Gunners pressed in the closing stages, but they were unable to find a precious equaliser.