The 18-year-old midfielder, who has been likened to Liverpool captain Steven Gerrard, is one of the most sought-after players in the Football League after a superb season with the Dons.
Alli, an England Under-19 international has hit 12 goals in 25 league games from midfield this season, and Newcastle are interested in bringing him to Tyneside.
However, his manager Karl Robinson says that a deal isn't close to being complete, and that the Magpies - or possibly another team - would be forced to loan Alli back to Milton Keynes for the rest of the season.
"I can't see him not wearing our shirt for the rest of the season," Robinson told BBC Three Counties Radio when asked about Newcastle's reported interest. "Part of the deal would be him staying with us for the rest of the season and joining whoever it is in the summer. There's no deal completely confirmed yet."
That shouldn't be too much of a problem for Newcastle, given that they've already completed two such deals for Nottingham Forest duo Karl Darlow and Jamaal Lascelles this season.
Despite John Carver only being appointed as manager until the end of the season, it seems that Newcastle are trying to build a base of young English players, with Darlow, Lascelles, Jack Colback and Rolando Aarons seen to be key parts of the club's future.
Should Alli arrive, he would be another piece of the puzzle for Newcastle in what seems to be an unfamiliar presence of a long-term plan at St. James' Park - and, in fact, Alli staying at Stadium mk until the end of the season would be great for his development considering that they're pushing for promotion to the Championship.