The Royals boss also revealed that Upson opted for a move to Reading although he had two offers to go elsewhere.
Twenty-three year-old Upson has appeared for double winner's Arsenal thirty-eight times in his relatively short career.
Alan Pardew told readingfc.co.uk of his delight at the signing.
He said: "We've got a big infrastructure, although we're not really a big name club yet. We're growing all the time and the signing of Upson is another sign that we're getting bigger.
"Matthew had a couple of options to go elsewhere but he chose us so I'm happy about that.
"We offered the same deals as the other clubs but he wanted to come here. That's important to me because we're growing as a club and we're seen in the football world in that way."
Upson joins on a three month loan deal but there is little chance of making the former Luton Town player a permanent part of the Royals squad.
"We've got no deal so getting Upson in on a permanent deal isn't really an option for us. But never say never."
Despite suffering from injury in recent years Upson is a highly-talented player who could still go on to play for England.
Pardew added: "Matthew's quick and mobile, good in the air, and a natural left-footer. He's coming to us at a good time. He's had a lot of injuries but he's over them now. He's at a key time in his career so needs to kick on from here.
"His last game was ten days ago but he is a quality player and quality players are always ready to play."
Meanwhile a Gunners spokesman said: "We wish Matthew the best of luck during his time with the Royals."