After weeks of rumours, the Spanish giants have finally confirmed the former Malaga man will remain with the club for the next few years.
Isco will appear at a press conference on Friday afternoon to sign his new deal, with his former contract set to expire in the summer.
The Spain international has impressed under Zinedine Zidane in the last 18 months and he scored 10 goals in 30 La Liga games last season.
He is expected to feature in Sunday's La Liga match against Real Sociedad and the 25-year-old will once again be expected to play a huge role this year.
Confirming the deal, a Real statement read: "Real Madrid C. F. and Isco have agreed to extend the player's contract, which will see him remain at the club until the 30th June 2022.
"Tomorrow, Friday, at 2pm, Isco will appear before the media in the press room of the Santiago Bernabéu stadium."