The Villarreal defender has also been linked with Tottenham.
Liverpool's Robert Firmino in action with Villarreal's Mateo Musacchio
The 25-year-old central defender wowed suitors last season as he provided the backbone for the Yellow Submarine's successful fourth-placed finish in La Liga and a return to the Champions League this season.
With John Stones' future with the Blues in doubt as a move to Manchester City edges closer, manager Ronald Koeman has identified Musacchio as a key target to bolster his defence in time for the new Premier League season.
Mateo Musacchio v Barcelona
Tottenham have long been linked to Musacchio, with Spurs boss Mauricio Pocchetino said to be a long time fan of the former River Plate ace's style of play.
A ball playing defender, Musacchio is also solid in the air and proved to be unbeatable on many occasions throughout the previous campaign, combining great skill on the ball and defensive efficiency.
Mateo Musacchio v Real Madrid
However, the same report from Inside Futbol state that the Argentina international, who went up against Liverpool with Villarreal in the Europa League last season, is holding out for a move to AC Milan, and is prepared to wait until the Rossoneri make a formal bid.
The Italian titans have yet to make an approach, reportedly unable to generate the funds to make a formal advance, but that Musacchio is potentially willing to wait does not bode well for both Everton and Tottenham.
Musacchio has made over 150 appearances for Villarreal since joining in 2010, scoring seven goals, and made his international debut in 2011.
Liverpool's Robert Firmino and Adam Lallana in action with Villarreal's Mateo Musacchio