The Brazilian midfielder has made no secret of his wish to quit Arsenal after experiencing what he described as 'the worst season' of his career.
Denilson has said he wants to return to his homeland if he fails to find a club who are competing in the Champions League, and it is thought Sao Paulo, where the 23-year-old started his career, are ready to offer him just the opportunity.
The player, who will reportedly join Sao Paulo on a season-long switch, will fly to Brazil at the weekend to be presented by the club next week.
"Everything has been settled. He is already returning home and he is very happy with that," a source close to Denilson has told Lancenet.
Denilson, who joined Arsenal from Sao Paulo in 2006 for £3.4 million, made 32 appearances for the Premier League outfit last season.