The 28-year-old attacking midfielder has been a bit-part player under Zinedine Zidane at Real Madrid and has made just three league starts this season.
Everton have been linked with wanting to sign Isco after securing his former team-mate James Rodriguez from Real Madrid in the transfer window.
And Ancelotti is a firm admirer of Isco, something which could open the door to a new year swoop.
It is claimed that Real Madrid are open to letting Isco go.
However, any move to Goodison Park for Isco would depend upon the finances making sense for Everton.
The Toffees have a solid relationship with Real Madrid after they signed Rodriguez for essentially nothing in the window.
The club though were not able to offload as many out of favour players as they wanted in the last transfer window and could need to shed stars from the wage bill before signing Isco.