Distributed source coding schemes are typically based on the use of channels codes as source codes. In this paper we propose a new paradigm, termed “distributed arithmetic coding”, which exploits the fact that arithmetic codes are good source as well as channel codes. In particular, we propose a distributed binary arithmetic coder for Slepian-Wolf coding with decoder side information, along with a soft joint decoder. The proposed scheme provides several advantages over existing Slepian-Wolf coders, especially its good performance at small block lengths, and the ability to incorporate arbitrary source models in the encoding process, e.g. context-based statistical models. We have compared the performance of distributed arithmetic coding with turbo codes and low-density parity-check codes, and found that the proposed approach has very competitive performance.