The family zone will be called Arthur’s Area and will be “a fun-filled space for young supporters to enjoy prior to kick-off”, the club said.
A giant flag and memorial bricks will also be placed outside St Andrew’s stadium to remember the young Blues fan.
Arthur was tortured and killed by his stepmother and father in June 2020.
Emma Tustin was jailed for 29 years for murder and child cruelty and Thomas Hughes was given 21 years for manslaughter.
Blues fans have also organised a march to St Andrew’s ahead of the match later against Cardiff City, and are to lay a wreath before kick off.
March organiser Tony Routledge said he hoped about 1,000 fans would take part and said the case had “touched everyone’s hearts”.
He said Birmingham City was a “family club” and said it is “going to be sad, but we wanted to make people see we cared”.
Arthur Labinjo-Hughes was killed by his father and stepmother in June 2020
Birmingham City said it had decided to rename Fridays Family Zone and call it Arthur’s Area after seeing photos of a smiling Arthur in a Blues shirt.
It said the photo “depicts a smiling, happy boy wearing a Blues shirt, and we as a Club will strive to keep that memory alive in people’s hearts and minds forever”.
The club have contacted a local stencil artist called Disney to decorate the newly renamed area, which will also contain information points from local children’s charities to help tackle child abuse.
Other plans to permanently remember Arthur include a memorial garden, the club added.
The match programme for the Cardiff game will feature Arthur on the front cover, with £1 from each sale going to children’s charities in Birmingham.
West Midlands Mayor Andy Street tweeted: “It says so much about our city and region the way everyone has come together in the face of such tragedy and heartbreak.”