Claudio Ranieri has reached a verbal agreement with Valencia and will take over as manager once he has reached a settlement with Chelsea.
Ranieri is also wanted by Tottenham, but has opted on a return to Valencia.
"I love going home. My heart is in Valencia," Ranieri told Spanish newspaper Marca.
"My lawyers are looking at the matters which remain with Chelsea and as soon as they are solved, there's a verbal agreement with Valencia."
Valencia's general manager Manuel Llorente also spoke of Ranieri's return to the club.
"We have reached an agreement, although it is overridden by his talks with Chelsea," Llorente confirmed.
Details of Ranieri's proposed move back to Spain came just hours after Chelsea unveiled Jose Mourinho as their new coach. The 41-year-old former Porto boss has signed a three-year deal at Stamford Bridge.
Ranieri said he met with officials from Tottenham on Tuesday to discuss the vacant manager's position at White Hart Lane.
But the Italian, who was sacked by Chelsea this week, maintained he would prefer to return to Spain with his former club Valencia.
"I had a meeting with Spurs and they have a very good project," he said.
"But Valencia are my former team and if it's possible I'll come back with them," he told BBC Sport.
Ranieri was in charge of the current Spanish champions from 1997 to 1999, guiding them to a Copa del Rey success and into the Champions League.
Valencia president Jaime Orti had earlier confirmed he is one of the candidates to replace coach Rafael Benitez who resigned this week.
But Orti says Ranieri must first resolve his contractual wrangle with Chelsea - which could net the former Blues boss up to £6m.
The 52-year-old's contract at Stamford Bridge ran until 2007 and his English representative Jon Smith has welcomed a pledge by Chelsea chief executive Peter Kenyon that the club will honour his contract in full.
Smith said: "If that means payment of all the monies and this season's bonuses due, without deductions, then there is no dispute.
"Discussions with Chelsea are continuing amicably and we are optimistic a settlement will be
Holland manager Dick Advocaat has also distanced himself from a move to Tottenham.
The former Rangers boss has been linked with Spurs following the appointment of his old colleague Frank Arnesen at PSV Eindhoven as sports director at White Hart Lane.
But Advocaat said: "There's nothing in it at all. I haven't heard anything and people are just saying that because I worked with Arnesen for four years at PSV."