Tony Popovic's men have been pitted against Arnold's Lions of Mesopotamia at next January's tournament in Saudi Arabia following Saturday's draw at the At-Turaif World Heritage Site in Riyadh.
Australia - world No.27 - are comfortably the highest-ranked side in group D where they will also face Tajikistan and Singapore.
They will open their tournament against No.147 Singapore on January 9, before facing 57th-ranked Iraq on January 14 and No.103 Tajikistan on January 19.
The Socceroos, out to regain the trophy they last won in 2015 under Ange Postecoglou, had been one of the top-ranked pot 1 sides after finishing top of their group in the second round of AFC qualification for the World Cup.
But they'll face a testing challenge against Iraq, the team now guided by the 62-year-old Arnold.
Arnold has played, been a head coach or an assistant coach in more than 200 Australian internationals.
"Obviously, having Australia in the group is something that will feel a bit strange, I've never played against them before," said Arnold, who inspired the Socceroos to the last-16 of the 2022 World Cup in Qatar.
"I've never coached against my own nation before.
"The good part is it's not a knockout phase, it's the opener of the draw where we can help each other both qualify for the next round."
Since resigning as Socceroos boss in 2024, Arnold has become feted in Iraq for steering the 2007 Asian Cup winners back to the World Cup for the first time in 40 years.
Iraq defeated Bolivia in a playoff in Mexico in March.
In a statement issued by Football Australia, Popovic said: "We are delighted to now have clarity on our group opponents.
"It is a competition that holds an important place in Australian football history, following our success in 2015, and one we will approach with great ambition and respect.
"Our immediate focus remains on the World Cup , and ensuring we are fully prepared for that challenge.
"But we have always had one eye on the future, with the Asian Cup following just six months later.
"Singapore, Tajikistan and Iraq are all strong opponents that we know and respect, and we look forward to the challenge ahead."
In the 24-team tournament to be played from January 7 to February 5 across eight stadiums in Riyadh, Jeddah and Khobar, four-time winners Japan have been grouped with defending champions Qatar.
The draw had originally ben set for April 11 but was postponed because of the conflict in the Middle East. The final field isn't yet complete with the Lebanon-Yemen match postponed to June.
Australia will have to qualify among the top-two in their group to guarantee qualification, but could also progress to the round-of-16 as one of the four best third-placed teams.
Full AFC Asian Cup 2027 draw:
Group A: Saudi Arabia, Kuwait, Oman, Palestine
Group B: Uzbekistan, Bahrain, North Korea, Jordan
Group C: Iran, Syria, Kyrgyz Republic, China PR
Group D: Australia, Tajikistan, Iraq, Singapore
Group E: South Korea, United Arab Emirates, Vietnam, Lebanon or Yemen
Group F: Japan, Qatar, Thailand, Indonesia
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