This study was designed to evaluate the effects of graded levels of arachidonic acid (ARA) in low fish meal diets (30% fish meal, 30% plant protein blends) on growth, feed utilization, and immunity of olive flounder (Paralichthys olivaceus). The control diet was formulated with 3% fish oil and 5.1% soybean oil (ARA0.0). Five other diets were formulated incorporating different levels of ARA into the ARA0.0 diet at the expense of soybean oil; that is, 0.3, 0.6, 0.9, 1.2, and 1.5% ARA (ARA0.3, ARA0.6, ARA0.9, ARA1.2, and ARA1.5), respectively. Three replicate groups of fish (88.24 ± 0.06 g) were placed into 18 polyvinyl circular tanks (215 L), with 24 fish each and fed an experimental diet twice a day for nine weeks. Overall, significantly improved growth performance was observed in the ARA0.6 group. Liver C18:2n-6 was significantly reduced, and liver ARA content was significantly increased with the increase in dietary ARA levels. Nitroblue tetrazolium activity was significantly higher in the ARA0.6 group, and significantly higher superoxide dismutase and myeloperoxidase activities were observed in the ARA0.9 group. Further, immunoglobulin level and lysozyme activity were significantly improved in the ARA0.3 group, antiprotease activity was increased in the ARA0.6 and ARA0.9 groups, and the ARA0.3 group showed lower liver lipid content than the ARA0.0 group. Serum prostaglandin E2 level was significantly increased with 1.5% ARA inclusion. Pro-inflammatory gene expressions of interleukin (IL)-6, IL-8, IL-10, perforin, and tumor necrosis factor in the intestine were significantly downregulated, and anti-inflammatory gene expression of transforming growth factor-β2 gene expression was significantly upregulated with higher dietary ARA supplementation (0.9–1.5%). These results indicate that 0.3–0.9% supplemented ARA may improve the growth, immune, and hematological parameters of olive flounder.