Demonstrators say the bill, which makes it a crime under state law to be in the country illegally, will lead to civil rights abuses. The law also requires police officers to question people about their immigration status if there is reason to suspect they are illegal immigrants.
Boos erupted at the Capitol from the crowd when it was announced that the governor had opted to sign the legislation despite their protest and President Obama's criticism of the measure.
Demonstrators have protested the legislation since it was approved by lawmakers Monday. Their numbers have steadily grown throughout the week, with buses bringing in people from as far away as Los Angeles.
In Mexico, a pro-migrant activist called the measure "racist."
Francisco Loureiro, who runs a Nogales migrant shelter, says in Arizona, "there is already a hunt for migrants and now it will be open season under the cover of a law."
Mexico has slammed the measure, saying it could strain cross-border relations and result in rights violations and racial profiling. On Thursday, Mexico's Senate unanimously passed a resolution urging Gov. Jan Brewer to veto it.
The legislation requires police to question people about their immigration status if there is reason to suspect they are illegal immigrants.
The bill's Republican sponsor, State Rep. Russell Pearce of Mesa, says it will remove "political handcuffs" from police and help drive illegal immigrants from the state.