Real Madrid had a buyback clause of just 7.5 million Euros, but now do not have space in their squad and won't be able to sign the player.
Atlético then opened negotiations with Espanyol, and have reportedly now reached a full agreement with the Catalan club to bring the centre-back to the Spanish capital.
Mario Hermoso will cost Atleti less than the 40 million release clause the player has in his contract, but the fee to make him a 'Colchonero' will still be a sizeable one.
Diego Simeone sees Hermoso as an ideal replacement for Lucas Hernández, and will be able to deploy the defender, who played 35 games last season, anywhere across his back four.
An official statement is yet to be released on the matter, with an announcement expected to be made in the next week.