Arbeloa, 43, replaces Marco Silva, who left Craven Cottage to join Benfica this summer after five years in west London. The appointment is in its final administrative stages. The Spaniard's three-year deal will make this his first senior managerial role in England — a country where he played for Liverpool and later West Ham United during his playing career.
Fulham's ambitions under Arbeloa are clear. The club wants to target European competition and sees the new manager's ability to identify and develop young players as the foundation for that push.
During his time running Real Madrid Castilla — the club's reserve side — Arbeloa developed a reputation as one of the sharpest talent identifiers in Spanish football. The Castilla squad he shaped carries a market value of close to €90 million, the highest in the team's history.
Players including Joan Martínez, Gonzalo García, Thiago Pitarch, Jacobo Ramón and Nico Paz all came through under his guidance.
Several of those players are now targets for Fulham's first window under the new manager. César Palacios, Manuel Ángel, Thiago Pitarch and Cestero — all Real Madrid academy products — are understood to be on the club's recruitment list, with Arbeloa's existing relationships likely to smooth negotiations, reports Marca.
The pull Arbeloa carries in the youth market is unusual. A number of Castilla players have indicated privately that they would follow him to his next destination. That loyalty gives Fulham a competitive edge in the market for young Spanish talent that no amount of money alone could replicate.
Arbeloa stepped down from Real Madrid's first team at the end of last season after a turbulent six months that included a Copa del Rey defeat to second-division Albacete and a Champions League quarter-final elimination by Bayern Munich, alongside a second-place finish in La Liga behind Barcelona. José Mourinho has since taken over at the Bernabéu.
His Castilla work remains the more meaningful part of his managerial record. At academy level, Arbeloa operated with a clear identity: possession-based football, high pressing and a genuine commitment to giving young players responsibility. That approach is precisely what Fulham are buying.
Fulham finished 11th in the Premier League last season — the same position as the year before. Arbeloa's first task will be to convince the squad and the wider football world that the club has genuine ambitions of climbing higher.