The American goalkeeper will be installed as second choice to Ederson in Pep Guardiola's ranks. Steffen is set to assume the role ahead of veteran Scott Carson, Kosovan international Arijanet Muric, and Mancunian youngster Daniel Grimshaw.
The current deputy to Ederson, Claudio Bravo, is set to leave when his contract expires at the end of the season.
Steffen spent the 2019-20 term with Fortuna Dusseldorf. He apparently garnered interest from other German clubs despite being sidelined for the second half of the season with a patellar tendon issue.
The 25-year-old Steffen last featured for Dusseldorf before the Bundesliga's winter break. The Ruckrunde, who are managed by Manchester City icon Uwe Rosler, recorded just two wins in 17 outings in Steffen's absence and eventually suffered relegation on the final day of the Bundesliga campaign.