The left-back is almost certain to leave the Bernabeu this summer, and had been linked with a reunion with Jose Mourinho at Stamford Bridge.
But the Portugal international is targeting a return to his former club, according to Portuguese newspaper A Bola.
The Real Madrid star spent four seasons at the club between 2007 and 2011 before making his big-money move to the Spanish capital.
But the 25-year-old has failed to dislodge Brazil international Marcelo from the starting lineup, and is set to call time on his Real Madrid career this summer.
The report claims Coentrao wants first-team football - something he feels can best be achieved at Benfica - and the opportunity to play under Jorge Jesus, the Benfica coach.
Jesus got the best out of Coentrao during his time at the club, and Coentrao believes he'll be happiest under the Benfica boss.
Monaco have splashed the cash this summer already, signing James Rodrigez and Joao Moutinho from Porto and Radamel Falcao from Atletico Madrid.
Ricardo Carvalho has also joined the club from Real Madrid on a free transfer. But despite their ability - like Chelsea - to offer a financial package comparable to Real Madrid, Coentrao will reject their approach in favour of Benfica.