The 18-year-old has chosen the powerful Brazilian club due to their track record developing youth players and their status as contenders to win the Copa Libertadores, the South American equivalent of the Champions League.
However, there remains a final hurdle regarding the length of the loan with the Blues preferring to see him return for next season and Palmeiras insisting to have him until December.
Negotiations are ongoing with a €1.5million re-call clause potentially included that could see the young midfielder return in June.
The Blues had initially signed Santos with an immediate impact for their first team in mind but have struggled to secure a work permit after his £16million move from Vasco da Gama.
Unfortunately, the youngster missed out by just one point to secure a UK-visa but will almost certainly be granted one after going on loan.
Santos recently won the Under-20s South American Championship as the captain of his Brazil side, also jointly claiming the Golden Boot after scoring six times in the tournament.
Meanwhile, Chelsea have agreed a fee with Hull City to sell Xavier Simons. The announcement is pending a final agreement over a new contract with negotiations hoped to be completed this week.