The 30-year-old is currently without a club after mutually terminating his contract with Sevilla in December last year, just four months after joining the La Liga side.
Isco featured 19 times across all competitions for Sevilla, scoring once and providing three assists, but head coach Jorge Sampaoli claims he "did not meet the club's expectations" during his short stint with the Spanish side.
The 38-cap Spain international has since been linked with a host of European clubs including Arsenal, Manchester United, Juventus, RB Leipzig and Wolverhampton Wanderers.
However, Sky Sports Deutschland reporter Florian Plettenberg claims that Isco has reached an agreement with Union Berlin to sign an 18-month contract until the summer of 2024.
Plettenberg has also posted an image on Twitter of a Union Berlin shirt donning Isco's name and the number 22, which he has worn at Sevilla, Real Madrid and Malaga earlier in his career, and claims that the midfielder 'really wants to join' the German club.
Meanwhile, fellow Sky Sports Deutschland reporter Lisa de Ruiter states that Isco arrived at Berlin Airport late on Monday night ahead of undergoing medical tests and completing his transfer on Tuesday.
Prior to joining Sevilla, Isco spent seven years at the Santiago Bernabeu with Real Madrid where he scored 53 goals and registered 57 assists in 353 appearances across all competitions.
The Spaniard won a total of 18 trophies with Los Blancos, including five Champions Leagues, three La Liga titles and four FIFA Club World Cups.
Isco, who offers a wealth of experience at the highest level, is now poised to join a high-flying Union Berlin side who are one of the surprise stories across Europe's top-five leagues so far this season.
Indeed, the Iron Ones are competing in just their fourth-ever Bundesliga campaign this term and currently sit second in the table, just one point behind perennial winners Bayern Munich after winning 11 and drawing three of their 18 matches.
Union Berlin captain Christopher Trimmel appeared to confirm the club's interest in Isco after the 2-0 league win over Hertha Berlin on Saturday, posting on Instagram: "This victory is for you Isco" accompanied with a celebratory team photo.
Urs Fischer's side have already completed three signings so far in January, including right-back Josip Juranovic who was strongly linked with the likes of Chelsea and Barcelona before completing his move to the Stadion An der Alten Forsterei from Celtic.
Union Berlin have also recruited left-back Jerome Roussillon and midfielder Aissa Laidouni on permanent deals from Wolfsburg and Ferencvaros respectively.