The move comes weeks after Atlanta traded down to acquire fifth overall pick Trae Young in the 2018 NBA Draft, then took Kevin Huerter at No. 19.
Lin averaged 14.5 points, 5.1 assists and 3.8 rebounds in 36 games for the Nets during the 2016-17 season while dealing with a lingering hamstring injury.
Earlier, free-agent guard Isaiah Thomas agreed to a one-year, $2 million deal with the Nuggets, according to ESPN.
Lin, who was on an expiring $12.5 million contract, hasn't played since rupturing his patellar tendon during the opening game last season.
Arthur, 30, got in just 30 contests in 2017-18, making one start.