The 21-year-old joined Real Madrid from La Liga rivals Malaga in 2013 after impressing hugely under Manuel Pellegrini.
He has made 18 league appearances for Los Blancos this season, netting six goals and laying on three assists in the process.
However, it looks as if things aren't quite right for him with Real Madrid if reports are to be believed.
Arsenal, who currently lie second in the Premier League and trail leaders Chelsea by just a point after a surprisingly impressive 2013/14 season, became renowned for their rather frugal approach to the transfer market prior to last summer's acquisition of former Real playmaker Mesut Ozil.
However, with Arsenal believed to have a lot of money spare for transfers and with the club having endured an extremely frustrating January transfer window, it certainly would not be a shock to see them such spend significant sums on quality reinforcements in the future.
Although it could be said that Arsene Wenger could perhaps do with focusing on boosting his strikeforce first and foremost, Spanish international Isco - who has two senior caps to his name - is a player of real quality who appears to have a long and successful future ahead.