Following several months of speculation, Ancelotti is now confirmed to be taking over as Brazil manager when his Real contract expires at the end of next season.
Brazilian Football Confederation president Ednaldo Rodrigues recently announced the move, and Ancelotti will take the reins in time for next summer's Copa America.
Ancelotti had been tipped to leave Real Madrid this summer in the wake of their failure to win the Champions League or La Liga, but he affirmed on several occasions that he planned to stay until the end of his contract.
As the 64-year-old gears up for his final season at the Bernabeu, president Florentino Perez will be drafting up a list of replacements, and according to the Daily Mail, four ex-players are under consideration.
The report states that Zinedine Zidane - who has already taken charge of Real on two separate occasions - is the favourite, as the Frenchman is itching to return to the dugout two years after leaving Real for a second time.
Zidane has since been heavily linked with the France job and was expected to take over from Didier Deschamps after the World Cup, but the current Bleus boss instead penned a contract extension until 2026.
The 51-year-old - who is still on good terms with Perez - also has no interest in managing Paris Saint-Germain or a Premier League club, and only Juventus could tempt him away from a third spell as Real head coach.
Bayer Leverkusen boss Xabi Alonso is understood to be second in line, having made an impressive start to life as a manager since taking over at the BayArena.
The 41-year-old led Leverkusen to the semi-finals of the Europa League - where they suffered a 1-0 aggregate defeat to Roma - and guided his side to a sixth-placed finish in the Bundesliga.
Real Madrid's final two candidates are both already employed in coaching roles at the club, as Castilla head coach Raul has also emerged as an option to take the reins from Ancelotti.
The 46-year-old has been in charge of the Blancos' youth team for four years, winning 57 of his 132 matches in charge and clinching the UEFA Youth League title in the 2019-20 season.
Real Madrid Castilla also finished third in the 2022-23 Primera Federacion - the third tier of Spanish football - but they just missed out on promotion to the Segunda Division.
Finally, former defender Alvaro Arbeloa is Real's fourth choice for the job, as the 40-year-old is said to have "friends in high places" in the Spanish capital.
Arbeloa led Real's Under-19s to six wins from eight UEFA Youth League contests last season, but his side were thrashed 4-0 by AZ Alkmaar in the quarter-finals.