Dortmund sporting director Michael Zorc confirmed to German newspaper Ruhrnachrichten that the teams are "in closing talks" and added that new coach Lucien Favre has been heavily involved in the transfer.
Meanwhile, Mainz chief Rouven Schroder admitted that his side are not counting on Diallo's return to training as they begin preparations for the new season.
"Diallo will not be there at the start of the training," he said. "We are in good talks with Borussia Dortmund, but the transfer is not perfect yet!"
Diallo is just one season into a five-year deal with Mainz and played 27 times and scored twice in the Bundesliga as his side finished 14th.
The left-footed defender made an impression in Germany with his comfort on the ball and ability to build from the back, while Schroder has hailed him as a key player who is strong in the air and in tackles.