The Spain international called time on his five-year stint at Molineux but is set for an immediate Premier League return with the Cottagers.
According to The Athletic, the deal is at an advanced stage and the 27-year-old is expected to conclude a move in the coming days.
Boss Marco Silva is keen to bolster his wide options ahead of the new season following the departures of loanee Dan James, Manor Solomon and Neeskens Kebano during the summer.
Silva this week confirmed the need for more reinforcements before the transfer window closes in three weeks time.
"100 per cent, no doubts," the Fulham boss replied when asked if more transfer business needed to be done.
Read more on Fulham
Marco Silva suggests Mitrovic and Willian are staying at Fulham despite Saudi interest
Joao Palhinha forced off with shoulder injury which could scupper summer transfer
"We are really short in numbers. The market has been difficult for us, and [other clubs] at this level. But we need more.
"We have two faces in, and seven left our squad. The targets are there. We know what we want. We want to add quality and good professionals. It's not been easy."
Fulham have been successful in bringing in two new players in Wolves' Raul Jimenez and Calvin Bassey from Ajax.
Combined, the pair set Fulham back £24million but Silva hopes to add to the list of new faces in the coming weeks starting with the Spaniard.
Most read in Football
Kane flying to Munich, Chelsea and Liverpool fight for Caicedo, Paqueta to Man City latest
Tyler Adams transfer to Chelsea collapses with USA star set to return to Leeds
Caicedo drops Chelsea transfer hint on Instagram but Pochettino remains tight-lipped
Caicedo stalls on Liverpool move as Chelsea plot hijack but Brighton still want £111m
Traore signed for Wolves in 2018 and clocked up 200 appearances for the Midlands club.
His performances earned the explosive winger eight caps at international level but his last appearance for Spain came back in 2021.
Traore had a brief spell on loan at Barcelona during the 2021-22 campaign before returning to Molineux.
He netted twice in 34 games during his farewell season at Wolves.