Unai Emery is keen to lure the star on a season-long deal.
Gunners boss Unai Emery is a fan of Ceballos, who wants to get out of Madrid to secure regular first-team football.
The Spanish giants have yet to fully agree to the move, but it is believed manager Zinedine Zidane will not prevent the Spain international from leaving the Santiago Bernabeu.
Should Zidane give the green light for Ceballos to complete the transfer, it should be finalized relatively quickly – with Arsenal keen to wrap up a deal.
The potential move coincides with comments from Arsenal director Josh Kroenke – the son of owner Stan Kroenke – telling fans to be excited about what could come before the close of the transfer window next month.
“I would say ‘be excited’,” Kroenke tole Arsenal.com. “There are a few things that I know our group is working on, and a few things we hopefully have on the doorstep.
“Nothing is ever a done deal until it’s a done deal, obviously, but we know we have key areas we want to address in our squad, both now and in the future.
“Our entire football operations staff have a great grasp on that and I’ve encouraged them to be as expressive as possible.”
Ceballos joined Real Madrid for £15 million ($19m) in 2017 from Real Betis but has struggled to nail down a regular starting spot at the Bernabeu.
The Spanish outfit is reluctant to lose him on a permanent basis, however, which is why a loan move to the Emirates looks the likely outcome from the talks between the two clubs.
Arsenal would have to pay a loan fee to take him for the season, while also covering his wages – which are thought to be around £2.7m a year.
Emery remains optimistic when it comes to getting bodies in, with Crystal Palace winger Wilfried Zaha another long-standing target, but accepts that the recruitment process may not move as quickly as an expectant fan base had been hoping.
The Spaniard told reporters when quizzed for an update on his transfer plans: “The club is working. We are speaking every day with the club and Edu.
“I prefer to work with patience and calm and make the best decision.
“We have very good players, very young good players. We need someone to help us. The club is working on that.”
Given the likes of Guendouzi and Maitland-Niles showing their potential, it’s better for Arsenal to focus on amending its defense. Arsenal should look to add more steel to its defense.