The agreement includes a massive 700-million-euro release clause, with Real following a policy of securing their stars with prohibitive figures in a bid to avoid the scenario that recently saw Paris Saint-Germain sign Neymar from Barcelona by paying his 222-million-euro buy-out fee.
But Isco who was superb last season for Real Madrid seems not to be comfortable with a move to Real's bitter rivals Barcelona after agreeing another five year deal.
Real meet Barca today in the first-leg of the Super Cup at the Nou Camp.
"My story with Real Madrid is deeper than contracts and signatures", Zidane told reporters when announcing the fresh terms at a press conference on Saturday.
However, whether either is viewed as a long-term replacement for Neymar remains to be seen.
Who do you think will win La Liga this season?
Isco's current contract is due to expire in June 2018 and it was said that Real Madrid were also ready to negotiate his departure in order to avoid losing him for free next summer.
Isco has reportedly agreed to commit his long-term future to Real Madrid by putting pen to paper on a new deal with an annual salary of €6m (£5.4m, $7m).
The Catalans also edged last month's Miami friendly between the two in Neymar's last game for Barca 3-2.
"The friendly game during the tour is a reference point", said Valverde.
Gerard Deulofeu was handed Neymar's role alongside Messi and Luis Suarez up front against Chapecoense on his return to the club after spells at Everton and AC Milan.
Elsewhere, Isco is likely to feature from the outset in midfield as Luka Modric misses out through suspension, with Gareth Bale in attack alongside Ronaldo and Karim Benzema.
"You'll see tomorrow", remarked Zidane "We are all well, physically and mentally flawless".