"Kahn is a good guy with a huge capacity for work," said Schalke chairman Clemens Tönnies after their three-hour meeting. "We knocked the details off quickly, a concept has been discussed and we have a full agreement.”
"We will speak again in two to three weeks by telephone," added Tönnies, who will now consult Schalke's executive committee.
Other candidates linked to the job include Germany's current team manager Oliver Bierhoff, ex-Hamburg coach Huub Stevens and current Wolfsburg boss Felix Magath.
But 39-year-old Kahn is the favourite and has already had several meetings in Gelsenkirchen to discuss replacing Andreas Müller, who was sacked last week.
"Above all, I want to work with a team," Kahn told the website of German newsmagazine Der Spiegel. "I consider this very interesting, but whether one actually takes a position depends on many factors and facets."
Kahn, who captained Germany in the 2002 World Cup final, retired from the German Football League at the end of last season, having led Bayern Munich to the German league title and German Cup double.
Since quitting football, Kahn has turned his attention to talent scouting and recently cut a trip to China short to meet with Toennies.