The Gunners have reportedly sent a physician to Porto Algeria, Brazil to conduct a medical exam on the player following tonight's Brazilian Cup quarter-final clash with Bahia.
The deal is estimated to be worth an estimated $45million, consisting of a $31million signing fee plus $14m in add-ons.
Manchester United had reportedly shown an interest in the 23-year-old and had sent scouts to watch him play.
The Spanish midfielder is reportedly close to joining Unai Emery's team from the LaLiga giants on a season-long loan deal, having been linked to London rivals Tottenham and AC Milan.
Asked about Spain international midfielder Ceballos on Tuesday, Emery said: "I don't want to speak about the names. But Ceballos is a very good player."