The Spanish giants have pipped Manchester City—the playmaker was widely believed to be heading for a Manuel Pellegrini reunion—and have now added one of Spain's most promising talents to an already burgeoning roster.
New boss Carlo Ancelotti has some decisions to make, as there's no obvious route for Isco to step into the starting XI. Any Isco invasion on his preferred left side could affect Cristiano Ronaldo severely, while any use of Isco centrally will put Mesut Ozil's role in jeopardy.
Squad depth is important, but let's ponder Ancelotti's options for a starting XI.
Real Madrid played a 4-2-3-1 formation throughout Jose Mourinho's tenure as boss, so the players are very accustomed to how it works.
Germans Sami Khedira and Ozil play the system at a national level, Spain have toyed with something like it, and Luka Modric feels at home in it.
Isco, too, played a 4-2-3-1 formation with Malaga for two seasons under Pellegrini, appearing on the left, right and in the centre of the advanced midfield line.
It would be safe for Ancelotti to use this formation as Madrid boss, rotating Isco in and out with Angel Di Maria, leaving Cristiano Ronaldo untouched on the left flank.
Ozil, too, would be able to continue in the No. 10 role he has perfected at the Bernabeu, and you can see the lion's share of Isco's work coming off the right side.
Ancelotti tinkered with his Paris Saint-Germain formation incessantly until he found the 4-2-2-2.
The formation worked a charm, and he took it into the UEFA Champions League to face Barcelona without fear. PSG lost on away goals but were by far the better side.
It's easy to see Ancelotti installing it in Madrid—perhaps not initially but after he's settled—and Isco would be perfect for the left attacking midfield role. This would push Ronaldo up front in a partnership, while Ozil is more than capable of manning the right (he did it for Germany U-21 and Werder Bremen).
The midfield pivot and back line remain unchanged, and the only question left is whether Karim Benzema is enough of a presence to lead the forward line.
Many have wanted to see Ronaldo as a striker, and Ancelotti could be the man to do it. Ronaldo would play as a second striker in a free role—á la Ezequiel Lavezzi at PSG—and largely continue doing whatever he pleases.
Isco provides wonderful depth in a 4-2-3-1 but would play second fiddle to Ozil and Ronaldo. That leaves Di Maria as the man on the hot seat, but, again, Ronaldo could slide up front in this formation.
Would this limit his role, though?