Spanish outlet El Confidencial, as quoted by talkSPORT, is reporting that the Gunners are pondering making a move to sign the 21-year-old midfielder in the summer transfer window.
The 21-year-old only signed for Real Madrid last summer from Real Betis but he has struggled to hold down a regular spot in the first team at The Bernabeu.
Indeed, he has only started two La Liga games for Zinedine Zidane’s side and has made just nine appearances in the top flight in total, scoring two goals.
According to the same report, Arsenal are “debating” whether to make an offer to sign the 21-year-old in the summer transfer window or not.
The new report comes after Liverpool FC were linked with a possible bid to sign the midfielder in the summer as Jurgen Klopp looks to bolster his squad at Anfield.
The same report also credits Serie A sides Juventus and AS Roma with an interest in landing Ceballos this summer.
Meanwhile, Arsenal are currently preparing for the crunch first leg of of their Europa League quarter-final clash against CSKA Moscow on Thursday night at The Emirates.
MORE: Man United latest news
MORE: Arsenal latest news
MORE: Chelsea latest news
MORE: Liverpool latest news