The centre-back captained the Spain's Under-19s as they triumphed in this summer's European Championship, boosting his reputation and increasing talk he would join a top club.
Zaragoza have reportedly been paid €5 million for Vallejo by the Blancos, who will loan the 18-year-old back to the second-tier Spanish side for 2015-16.
Vallejo will link up with Rafa Benitez's squad in 12 months' time, allowing Zaragoza to benefit from his quality while offering up first-team football he would not receive at Real Madrid.
In addition to purchasing the highly-rated defender from the cash-strapped club, Madrid have also acquired young Zaragoza goalkeeper Dario Ramos for an additional €1m.
Vallejo was named in the best XI in the Segunda Division in 2014-15 and is alleged to have been on Madrid's radar for 12 months, with concrete interest increasing at the start of July.
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