The 18 year old was swimming with a friend when he got into difficulty after 2pm.
A spokesperson for Malin Head Coastguard said the Coastguard helicopter from Sligo responded to the incident.
They received the call at 2.40pm this afternoon.
The local RNLI lifeboat on the island was tasked to the scene at 2.50pm.
However, the teenager's body was removed from the water a short time later.
It is understood the young man was a sixth year Leaving Cert pupil at the local secondary school.
“We got the call at approximately 2.40pm from a member of the public advising the swimmer was in difficulty", the spokesperson revealed.
“He was swimming just off the shore and a local got him ashore and started performing CPR.
“The rescue helicopter from Sligo and the Árainn Mhór lifeboat was tasked to the scene. He was recovered from the water by a local person shortly after we got the call. He died sometime afterwards at the scene.
“There was also an ambulance and local doctor on scene as well.
A Garda spokesperson said: "Gardaí and local emergency services responded to an incident earlier this afternoon, 3rd January 2021, on Arranmore Island, Co.Donegal.
"A man, aged in his late teens, was removed from water after he had gotten into difficulty.
"He received treatment from medics at the scene, but was later pronounced dead.
"The body of the man will be taken to Letterkenny University Hospital where a post-mortem will take place at a later date."
A local on Arranmore said locals were numb with the news especially as it came during the holiday period.
"People are just shocked. The news swept the island in a matter of minutes.
"People on Arranmore are no strangers to tragedy over the years but it never gets any easier and especially at this time of the year."