Costa has not featured for Chelsea since the FA Cup final in May, and opted to remain in Brazil this summer rather than return to Cobham amid a bitter public dispute with the Premier League champions surrounding his future.
Earlier this summer, Costa accused Chelsea of pricing him out of his desired move back to Atletico in an interview with ESPN Brasil, but the clubs have now agreed on a fee.
According to El Mundo, Costa will sign a contract through June 2021 and will be Atletico's most expensive signing, with the Spanish publication saying Atletico will pay €55 million (£48.5m), plus €10m (£8.8m) in variables, surpassing the €40m they paid Porto for Radamel Falcao in the summer of 2011.
Sources close to Chelsea confirmed to ESPN FC the total fee was around £58m -- the same price the club spent on Alvaro Morata in the knowledge that Costa was leaving.
A statement on Chelsea's official website read: "Chelsea Football Club has today agreed terms with Atletico Madrid for the transfer of Diego Costa.
"The transfer will be subject to the agreement of personal terms and a medical."
Atletico added: "The English club has authorised Diego Costa to travel to Madrid in the coming days to undergo a medical and agree a contract with our club."
Atletico can officially register Costa on Jan. 1, when the Spanish transfer window re-opens and their FIFA transfer ban ends, but agreeing a deal means the focus can now turn to getting the 28-year-old back into peak physical condition in time for the new year.
Chelsea included Costa in their submitted Premier League squad list last month in order to give the Spain international a theoretical path back into the first team, but he was omitted from their Champions League squad to avoid him becoming ineligible for Atletico in the competition, and there never appeared to be a realistic prospect that he would play under manager Antonio Conte again.
Costa joined Chelsea from Atletico for £32m in the summer of 2014 and won two Premier League titles at Stamford Bridge, finishing as the club's top scorer in each of his three full seasons. But he never hid his dissatisfaction with life in England and pushed for a move back to Atletico on several occasions.
He was dropped by Conte in January following a training-ground argument and a lucrative bid from Chinese Super League club Tianjin Quanjian, and Chelsea proactively pursued an elite striker this summer -- eventually signing Morata for the club-record £58m.
Chelsea face Atletico in a Champions League group stage match in Madrid next week, though it is not yet clear whether Costa will be unveiled before then.
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