Skysports.com understands Wolfsburg boss Steve McClaren is ready to bring back Diego to the Bundesliga.
The Juventus midfielder has failed to settle in Turin and skysports.com understands that the German club have tabled a bid in the region of €20million for the Brazilian playmaker.
Diego spent three seasons in Germany with Werder Bremen from 2006 before joining the Old Lady last summer in a deal worth £21.5million.
Wolfsburg's technical director Dieter Hoeness is believed to have visited Diego in Italy last week to negotiate contract details.
The former England manager is a known admirer of the 25-year-old who failed to meet Juve's expectations last season.
Wolfsburg, the 2009 champions may also negotiate a player exchange deal with the Italian side who are known to have a firm interest in Bosnian Edin Dzeko, the top Bundesliga scorer last season.
Meanwhile, Juventus are reportedly chasing Udinese striker Antonio Di Natale and any transfer income raised would be used to try and purchase the Italy international.