The Portuguese giants announced the deal through their official Twitter account on Saturday:
It's a move that's likely to see the Brazilian anchor get the first-team playing time he might not have were he to remain with his parent club.
Casemiro's chances look all the slimmer after Toni Kroos was confirmed by Real as a £24 million acquisition earlier this week, adding to the competition at the heart of Carlo Ancelotti's squad.
The 22-year-old spent the second half of the 2012-13 season on loan at the Bernabeu before making his move from Sao Paulo permanent that summer. Last season saw him continue to advance with Real Madrid B, as well as making several surges into the senior side.
Real Madrid TV presenter Phil Kitromilides confirmed that should Porto exercise their right to purchase the youngster, Los Merengues will retain a buyback clause should they ever wish to take the player back to the capital:
Along with Kroos, the Sao Paulo product would be jostling with the likes of Luka Modric, Xabi Alonso, Asier Illarramendi and Sami Khedira for playing time, making it tough to envision where he fits into Ancelotti's plans.
That being said, Christopher Atkins of ESPN FC feels the Brazil international can develop into a top talent, given the right circumstances:
At the Estadio do Dragao, Casemiro will look to fill the void left in defensive midfield by Fernando, who recently joined Manchester City.
Julen Lopetegui, Porto's new manager, has previously worked within the Spain international youth coaching setup and will be familiar with what his newest signing can offer in the Primeira Liga.