The Chelsea midfielder will call time on his Stamford Bridge career in hope of finding regular game time at the San Siro.
The 27-year-old is out of contract next summer and has agreed personal terms on a four-year deal.
Loftus-Cheek will join former fellow Chelsea academy graduate Fikayo Tomori at the Serie A club after he made the switch in 2021.
He will also link up with Liverpool cult-hero Divock Origi who joined the Rossoneri last summer.
The midfielder will bring his long association with the Blues to an end after making his debut in 2014.
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However, arguably his best season to date came during a highly-successful loan spell at Crystal Palace in the 2017/18 season.
He ruptured his Achilles during a pre-season friendly against New England Revolution in July 2019, which kept him out of action for almost a year.
The England international spent the 2020/21 season on loan at neighbours Fulham before returning to Stamford Bridge in hope of breaking his way into the starting eleven.
Loftus-Cheek will leave Chelsea having made 155 appearances, scoring 13 goals and providing 18 assists.
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His move to Italy could provide him with the springboard to add to his ten England caps, with his last appearance for the Three Lions coming in 2018.
Milan can offer him Champions League football again after Chelsea's dismal campaign ensured they missed out on European football entirely next season.