Henry, Arsenal's new all-time top scorer, received a silver cannon from the previous record holder, Ian Wright before kick-off.
He won the 61st-minute penalty that decided the match. But he had few chances to shine against well-organised City, who showed spiky determination, in the image of their manager Stuart Pearce.
Arsenal have made their worst Premiership start for seven years. But this win takes them to sixth, a point behind City. They already trail Chelsea by 11 points though.
Dennis Bergkamp returned along with Henry - who made his first start after groin trouble. Cesc Fabregas moved to the right of midfield with Mathieu Flamini partnering Gilberto in the centre.
City had to reshuffle their defence in the absence of knee victim Richard Dunne, Nedum Onuoha and Ben Thatcher. Sylvain Distin did his very best to plug the gaps.
Striker Andy Cole, who began his career at Arsenal, had to drop out because of a late injury.
Pearce, the former England left-back, has noticeably tightened City's defence. They have now gone 17 Premiership matches without conceding more than one goal in a game. They marked aggressively and closed space with enthusiasm.
But they lacked punch in Cole's absence. Pearce used Darius Vassell as a lone striker with Antoine Sibierski supporting from midfield. But the service to him was sporadic and the ball too often failed to stick.
Arsenal began by zipping the ball around. Bergkamp's diagonal pass picked out Lauren whose near post cross was hacked away by Distin as Flamini closed in.
Pires missed a great chance in the 14th minute, blazing wide from ten yards after Henry broke on the left and squared the ball across.
Pires and Henry went down under tough challenges from Danny Mills and Joey Barton. Pires looked rattled by Mills' attention.
Arsenal continued to dominate but they over-elaborated in the congested midfield. Fabregas kept drifting inside to add to the congestion.
The Gunners began to grow frustrated. Arsene Wenger rose from the dug-out to urge them to calm down - and to remonstrate with the fourth official about the visitors' aggression.
Arsenal, without Patrick Vieira's physical presence, can be rattled by robust opponents.
Henry tried a spectacular overhead kick, failed by inches to find Bergkamp with a throughball and then picked out Lauren who shot weakly at David James.
Vassell pounced as Pascal Cygan failed to clear James' long kick, but dragged his shot wide of the far post. That was City's best chance.
The Gunners finished the half with another intricate move, which ended with James saving at Fabregas' feet.
Mills and Pires were booked as tempers flared after the restart. Bergkamp flicked out at Mills and Lauren's mis-hit cross seemed to sum up Arsenal's frustration.
The game turned on the first penalty. Kolo Toure strode forward and Henry broke into the box. The French maestro was running away from goal, but James brought him down, referee Mike Riley pointed to the spot and Pires lashed the kick into the roof of the net.
The goal did not settle Arsenal though, who still struggled to find their rhythm. Their nerves were set jangling by a second penalty 11 minutes later that was missed in bizarre circumstances.
Bergkamp burst into the box, beat Kiki Musampa and then went down under Stephen Jordan's challenge.
Riley awarded a second penalty but this time Pires ran up, seemed to dummy the keeper, grazed the ball with his studs, stopped as City defenders ran into the box - and Riley awarded a free-kick against him.
The fans were stunned. Wenger stood amazed - this was no way to celebrate his 56th birthday.
An offside flag rescued Arsenal minutes later after Vassell headed in Musampa's cross and it looked a marginal decision.
Vassell stubbed a volley wide minutes later with debut-making 17-year-old Micah Richards joining him in attack with five minutes left.
Arsenal almost punished them on the counter-attack. Henry's pass split the defence and James made another fine save at Fabregas' feet. Flamini hit the post in the 89th minute after another Henry break.
So often-flustered Arsenal continued their amazing run of 18 games unbeaten against City. Feisty City clearly missed Cole's threat - but no-one will relish meeting Pearce's side.
MAN OF THE MATCH: Sylvain Distin (Manchester City) - He was outstanding in a City defence that was missing several key performers. His tidy and unfussy play often frustrated a misfiring Gunners strikeforce.