The Gunners have been in pursuit of the 22-year-old, but are yet to offer up Lyon’s £46 million asking price.
Mikel Arteta is in the market for a central midfielder to bolster his options in the middle of the park, with Aouar and Thomas Partey his top targets.
The report states Zidane recently spoke with Aouar, who is said to view the idea of moving to the Bernabeu and linking up with the French boss as a ‘dream’.
Madrid’s finances have taken a hit due to the Covid-19 pandemic, meaning the deal would likely be an initial loan with an obligation to buy next summer.
Lyon are believed to be open to that idea, as long as they get the amount they are asking for in the end.
When asked about a potential move for Aouar, Gunners boss Arteta said: ‘Well, I am very confident in what we are trying to do internally. [I am getting] clarity and support from everybody at the club to try and improve the team if we can.
‘But most importantly as well, to get the right balance in the squad, for now and the way we want to evolve the squad in the future. We are all very much aligned but I’m afraid that I cannot give you any updates or news.
‘I think it is a crucial moment because in the end it defines the people, the players, the balance and the quality that you’re going to have for the rest of the season.’