For 1997, Diniz was confident heading into the season and his decision to join Arrows, saying: "The all-round strength of the package Tom [Walkinshaw] has put together for 1997 made the decision very easy for me". Diniz started his season with a finish in Australia and later suffered from consecutive retirements in the next five races. He managed to finish eighth in Canada, before picking up further consecutive retirements in the next four races. Diniz managed to secure a seventh-place finish in Belgium, however he had been running in an excellent third place before a problem at his first pit stop dropped him out of contention. Diniz suffering a further retirement in Italy, however he managed to secure finishes in the next three consecutive races, which included a points scoring finish at the Luxembourg Grand Prix and retired from the final race of the season at the European Grand Prix. Diniz's reputation grew throughout the season from a mere pay driver to a genuine racing driver, he managed to out-qualify teammate Hill in Belgium and Japan, two of the most technically challenging tracks on the calendar, also having a number of strong race performances. In October, Arrows announced that Diniz had signed a one-year extension to his contract, remaining with the team for 1998. Diniz finished the season in sixteenth place in the Drivers' Championship, with two points, and finished four places behind team-mate Hill.