A fee of £21.6million has been agreed between the two clubs for the services of the 22-year-old midfielder and he will sign a four-year deal once a medical has been completed.
Thiago had reportedly been a target for Manchester United but has elected to team up with former Barca coach Pep Guardiola at the current champions of Europe.
Guardiola had made the acquisition one of his priorities this summer as he looks to build ahead of his debut season in charge of the Bavarian giants.
The transfer agreement also includes a commitment to hold a friendly game between the two clubs at some point by 2017.
A short statement from Barcelona read: "FC Barcelona and FC Bayern Munich have reached an agreement over the transfer of the player Thiago Alcantara to the German club for a total of 25 million (euros).
"This agreement also includes holding a friendly match between the two teams, which will be played in the next four years."