Alcantara has long been expected to join Premier League champions Manchester United, but has now instead joined the Champions League winners.
The youngster will link up with former Barcelona boss Pep Guardiola at Bayern Munich.
Bayern Munich have agreed to pay a fee of 25 million euros for the Spain Under-21 midfielder.
Thiago will have a medical in Munich in the next few days before signing a four-year contract with Bayern, the club confirmed on their website.
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Since Guus Hiddink arrived at the helm, Chelsea have improved considerably after a tricky start to the campaign.
Newcastle United are staring down the barrel of relegation to the Championship for the second time in the past eight years.