“Real Madrid and Malaga have reached an agreement for the transfer of Francisco Roman Alarcon Isco, who will be tied to the club for the next five seasons,” said a statement on Madrid’s website.
21-year-old Isco won the European U21 Championship while on international duty, scoring an impressive three goals.
The deal is believed to be around £23m and he will be presented on July 3 after undergoing a medical.
The creative midfielder also attracted attention from Manchester City and admitted that the prospect of linking up with former Malaga boss Manuel Pellegrini appealed to him.
However the lure of Real Madrid proved impossible to resist and he becomes becomes the first transfer completed by the managerial duo of Ancelotti and Zidane.
Ancelotti was confirmed as Jose Mourinho’s successor on Wednesday, and had to face questions at his press conference about possible new arrivals.
He also declared that he is to be joined in the dugout by Zinedine Zidane, as his assistant manager.