The Spaniard spent his last season on loan at Arsenal.
According to reports, Ceballos is surprisingly keen on a return to his boyhood club Real Betis, where he had played for around three years before moving to Santiago Bernabeu.
Arsenal were said to be considering signing the Spaniard on a permanent deal, but it looks like he has other ideas.
Mikel Arteta had previously revealed that Ceballos was interested in a return to Emirates although he is bound to Real Madrid.
Despite a shaky start, the 24-year-old was brilliant towards the later stages of the last season, eventually helping the Gunners win the FA cup.
Los Blancos are also interested in keeping Ceballos for next season although Zinedine Zidane has summoned Martin Odegaard from Real Sociedad. The Norwegian had an impressive loan spell last season.
The former Real Betis man had an impressive season as the captain for the Spanish national team in Euro U-21 last year, leading his side to the title. He has also earned nine caps with the senior side thus far.
During his previous spells with Spanish Capital, Ceballos had hardly found his place in the starting line-up, which eventually made him seek a transfer to North London last summer.
It comes as a massive blow for the Gunners as Ceballos, one of their top targets, has decided to move to Real Betis to enjoy more game time.