Isco has completed his €28 million transfer to Real Madrid from Málaga.
The 21-year-old, outstanding for Spain during their Under-21 European Championship triumph in Israel this month, has signed a five-year contract with Los Blancos.
Pellegrini gave Isco his Málaga debut in 2011, as the ebullient attacker emerged as the team's talisman.
Isco was exceptional in the Champions League, where Maálaga reached the quarter-finals, only to be memorably eliminated by Borussia Dortmund.
New Madrid coach Carlo Ancelotti was asked about the former Valencia man yesterday at his press conference.
The Italian said: "From what I have seen of him, it's clear he has a lot of quality.
"Spain's Under-21 side has a lot of great players and he is one of the best.
"He could get into any team in the world, so he could also play for Madrid."