Owen discussed a return to Liverpool his preferred destination before agreeing to join his former club's Premier League rival and team up once more with former England captain Alan Shearer.
Newcastle said the 25-year-old Owen who has a history of hamstring trouble would have a medical exam Tuesday. But that didn't stop the club shops printing his name on Newcastle shirts and fans lining up to buy them.
Two rounds of World Cup games means there is a break in the Premier League schedule until Sept. 10 so Newcastle won't be able to introduce him to the media as a Magpies player until late next week.
Newcastle did not reveal the transfer fee but said it beat the club-record 15 million pounds (US$26.8 million; €22 million) it paid for Shearer in 1996.
British news reports said the fee was 17 million pounds (US$24.8 million; €24.8 million) and that Owen was forced to join the Magpies because Liverpool was unwilling to match it.
That left Owen with the choice of staying as Madrid's fifth-choice striker or joining Newcastle a club struggling in the Premier League and not qualified for European competition. The last time Newcastle won the league title was in 1927.
Owen wanted to leave Madrid because he needs match practice in the buildup to next year's World Cup. He scored 16 goals last season after joining from Liverpool a year ago but failed to get a regular first-team place.
Magpies manager Graeme Souness struggled to find the right partner for Shearer trying out Craig Bellamy and Patrick Kluivert before moving them on. He has recently hired Albert Luque from Deportivo de La Coruna but the Spaniard is likely to be a backup to the Shearer-Owen partnership.
If Owen passes his medical he will wear the No. 10 shirt and play alongside Shearer who was his strike partner at the 1998 World Cup and 2000 European Championship. Shearer 35 retired from international soccer after Euro 2000 and was due to finish his career at the end of last season before agreeing to stay on at St. James' Park.
"Bringing Michael to St. James' Park will rank alongside the signing of Alan Shearer as my proudest moment at Newcastle United Newcastle chairman Freddy Shepherd said on Tuesday.
"Newcastle fans love center-forwards and Michael is a fantastic goalscorer. He's someone we would love to build the team around and we hope he can help us bring success to the club."
Newcastle is next-to-last after four Premier League games and is the only team yet to score. Owen's arrival should help - he scored 158 goals in 297 appearances for Liverpool his first club.
Owen scored more goals against Newcastle than any other team but never played under current Liverpool manager Rafael Benitez who sold him for 8 million pounds (US$14.3 million; €11.7 million) shortly after taking over.
Although he's a regular for England - playing at the two most recent World Cups and European Championships - Owen wasn't even a substitute for Madrid's season opener against Cadiz on Sunday. It was the first time he had been omitted other than because of injury since he joined.
Madrid started with Raul Gonzalez and Ronaldo up front and can also call upon Brazil forwards Julio Baptista and Robinho whom it signed in the offseason.
Madrid's director of soccer Arrigo Sacchi said he was sad to see Owen leave but understood his reasons.
"He's now a player for the English club. We're saying this with disappointment because we have lost a great professional a first-class player and a person who is always positive Sacchi said.
"Real Madrid has always been happy with him and we thank him for what he has done here. We wish him all the luck in the future.
"He asked to leave because this is World Cup year and here he wasn't always going to play. We didn't want to loan him out and only when a big offer arrived did we accept his transfer."
Madrid may use the proceeds from the sale to fund a bid for Sevilla's 19-year-old rightback Sergio Ramos Spanish media reported in recent days.
Although the Spain international has a €27 million (US$33 million) buyout clause Ramos suggested on Sunday he could be allowed to leave for less.