The Spain international has not featured for the Blues this season after falling out with Antonio Conte.
However, the two clubs have now agreed on a fee that could reportedly rise up to €60 million.
A statement on Atletico's website read,"Atletico Madrid and Chelsea have reached an agreement in principle for the transfer of Diego Costa.
"The agreement is subject to the signing of a contract between the club and the Spain international.
"The English club have granted permission to Diego Costa to travel to Madrid in the coming days in order to pass medical tests and to finalise his contract."