The deal has not yet been signed, but all the terms are already in place with the French superstar set to be paid an astonishing £13million-per-year in Spain.
Liverpool and Arsenal were linked with an interest in possible moves to bring the 2018 World Cup winner to the Premier League.
But Mbappe's dream to joining Real Madrid and the Spanish giants' interest in the 25-year-old has been no secret.
PSG have maintained a concrete decision over Mbappe's future has not been decided yet, insisting there was every chance he could sign a new contract to stay put.
But it is now understood a deal has been agreed that will see Mbappe finally become a Real Madrid player in the summer.
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It is estimated Mbappe will be paid around £13m-a-year [€15m] in basic wages at the Bernabeu, and his free transfer will include a £128m [€150m] signing-on fee.
That mammoth bonus is set to be paid over a period of five years, with Mbappe to put pen to paper on a five-year contract in the Spanish capital.
Mbappe is PSG's all-time record scorer with 244 goals, as well as 93 assists, in 291 appearances since his arrival from Monaco in 2017.
He was an 18-year-old wonderkid when he joined PSG in a £166m [€180m], but over the course of seven seasons at the Parc des Princes has become one of the finest footballers in the world.
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While he has collected five Ligue 1 titles during his career in his homeland, his career high so far was lifting the World Cup with France in 2018 after scoring in the final against Croatia.
What has turned out to be his final season at PSG has been a messy one so far.
Mbappe was left out of the club's pre-season tour of Japan after telling club bosses he would not agree to extend his contract by a further 12 months.
And only this past weekend he was left out of PSG's starting XI by manager Luis Enrique. Mbappe started Saturday's league clash against Nantes on the bench, but later came on and scored in a 2-0 win.
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