Geoffrey Kondogbia’s deflected 25-yard strike gave the Ligue 1 side the lead in the first leg of the Champions League last-16 tie seven minutes before half-time in north London.
We were suicidal defensively. We were open on the second and the third goal
Former Tottenham Hotspur striker Dimitar Berbatov then finished off a counter-attack from 12 yards to make it 2-0 in the 53rd minute.
Wenger’s men pulled a goal back when substitute Alex Oxlade-Chamberlain curled home in the 90th minute.
But Yannick Ferreira Carrasco scored in stoppage time to put Monaco in charge of the last-16 tie ahead of the second leg on 17 March.
“It’s very, very disappointing, ” said Wenger, speaking to Sky Sports.
“The Champions League is down to the performance on the day and when you don’t perform at the level that is requested for 90 minutes you are punished, because the teams have the quality.
“We had both aspects wrong – the chances we didn’t take, and we were suicidal defensively. We were open on the second and the third goal. We knew at half-time we had to keep our nerves.
“At 2-1 how can we, with one minute to go, leave the whole half open? It’s difficult to understand.
“It was a horrible night but congratulations to Monaco, they fought and defended very well to catch us on the break.
“We knew before the game they would absorb us and get us on the break. What happened? Exactly that.”
Arsenal will need to score at least three goals if they want to have any hope of reaching the quarter-finals of Europe’s elite club competition.
And former Monaco boss Wenger accepts that his side have an uphill task awaiting them next month.
The Gunners boss added: “The task is massive now. The third goal makes it even more difficult. But we’ll have a go of course and see what we can do there.”
MORE: Man United latest news
MORE: Arsenal latest news
MORE: Chelsea latest news
MORE: Liverpool latest news