Sancho has become one of the most sought-after talents in Europe since leaving City in 2017.
And City hope to steal a march on their rivals, by launching a £90 million bid in January, says The Sun.
City boss Pep Guardiola is keen on boosting his ranks in an effort to reignite his side's title chances.
Sancho has been performing well in the Bundesliga, but boss Lucien Favre could be open to selling the 19-year-old to fund a move for Erling Haaland.
And he could be prepared to return to England, with no shortage of interested clubs.
He turned down the chance to stay at City in order to gain first team experience at Dortmund, who signed him for £8 million.