The Brazilian international, who joined Madrid from Sao Paulo last summer, struggled to make the breakthrough at the Bernabeu last season.
As a result, the 22-year-old has been allowed to depart the club on loan, with Porto having the option of making the move permanent at the end of next term.
"Real Madrid and FC Porto have reached an agreement for the loan of the player Casemiro for the 2014-15 season," read a statement from Madrid.
"Porto reserve an option to buy at the end of the season. If the Portuguese club execute this, Real Madrid will retain an option to buy back the player."
Casemiro has been capped five times for his country.