Given C⁎-algebras A and B, consider the Banach algebra A⊗γB, where ⊗γ denotes the projective Banach space tensor product. If A and B are commutative, this is the Varopoulos algebra VA,B; we write VA for VA,A. It has been an open problem for almost 40 years to determine precisely when A⊗γB is Arens regular; see, e.g., [33], [48], [49]. We solve this classical question for arbitrary C⁎-algebras. Indeed, we show that A⊗γB is Arens regular if and only if A or B has the Phillips property; note that A has the latter property if and only if it is scattered and has the Dunford–Pettis Property. A further equivalent condition is that A⁎ has the Schur property, or, again equivalently, the enveloping von Neumann algebra A⁎⁎ is finite atomic, i.e., a direct sum of matrix algebras. Hence, Arens regularity of A⊗γB is entirely encoded in the geometry of the C⁎-algebras. In case A and B are von Neumann algebra, we conclude that A⊗γB is Arens regular (if and) only if A or B is finite-dimensional. We also show that this characterization does not generalize to the class of non-selfadjoint dual (even commutative) operator algebras. Specializing to commutative C⁎-algebras A and B, we obtain that VA,B is Arens regular if and only if A or B is scattered. We further describe the centre Z(VA⁎⁎), showing that it is Banach algebra isomorphic to A⁎⁎⊗ehA⁎⁎, where ⊗eh denotes the extended Haagerup tensor product. We deduce that VA is strongly Arens irregular (if and) only if A is finite-dimensional. Hence, VA is neither Arens regular nor strongly Arens irregular, if and only if A is non-scattered; this is the case, e.g., for A=ℓ∞.