The player will spend the season with the Italian side on season-long loan.
The 23-year-old struggled to make an impact in his first season at Chelsea after he was signed from Monaco for £40 million last summer.
New Chelsea manager, Maurizio Sarri has a wealth of options in central midfield and Bakayoko has faced increased competition for his place following the arrivals of Jorginho from Napoli and Mateo Kovacic from Real Madrid.
There is also England star Ruben Loftus-Cheek who returned to the club after his season-long loan at Crystal Palace.
And Bakayoko has decided to join AC Milan where he has already agreed terms.
Metro UK, reports that Chelsea and AC Milan have agreed a season-long loan deal for the midfielder, while the Serie A club have the option to make the move permanent next summer for €40m (£35.7m).
Bakayoko arrived at Milan airport on Sunday and is due to undergo a medical on Monday.
The former Monaco star made 43 appearances in his first season at Stamford Bridge.