It was expected that the highly regarded Spanish under-21 international would choose los Blancos over Manchester City, and the club’s president has now confirmed it.
"Isco is signed (from Malaga) and must pass his medical examination”, he told Radio Nacional's Radio 5.
It was expected initially that the player would join up with previous manager Manuel Pellegrini at his new club Manchester City.
Potential teammate Sergio Ramos spoke positively about Isco's pontential arrival earlier this week.
"Isco is a great player and we always aspire to reinforce with the best. It's a joy [to hear rumors of a transfer]," he told Onda Cero.
The former Valencia starlet announced his arrival on a European stage following a successful campaign for Los Boquerones, in which he helped his side reach the Champions League quarterfinals.
The 21-year-old scored 12 goals in 47 appearances in all competitions last season.