The Argentinian had a medical on Monday and the Premier League champions are poised to unveil him as their third signing of the summer.
And the highly-rated Caballero, who is likely to cost around £6m, is seen as having the ability to act as a genuine rival to Joe Hart for the goalkeeper’s jersey at City.
The 32-year-old Caballero was an Olympic gold medal-winner in 2004 with Argentina and impressed during his spell at Malaga, where he played under City boss Manuel Pellegrini.
The new man will replace Costel Pantilimon, who has left for Sunderland, in the City squad.
Pantilimon usurped Hart as City’s Premier League goalkeeper for a brief period last autumn but primarily acted as an understudy to the England man.
City have already signed full-back Bacary Sagna and midfielder Fernando this summer, as they prepare for the defence of their crown.