Iheanacho has fallen out of favour at Manchester City with Sergio Aguero and Gabriel Jesus above him in the pecking order.
Hoffenheim are currently third in the Bundesliga table and on course to qualify for Champions League next season.
In Iheanacho, Hoffenheim see a young striker who has lots of experience playing at the top level.
The Julian Nagelsmann side are looking to make a move for the 20-year-old ahead of next season.
Manchester City would be willing to do business with Hoffenheim as they are looking to promote another player from their academy.
Iheanacho could be the second Nigerian player to play for Hoffenheim if the deal goes through.
Nigerian forward Chinedu Obasi played for the German side between 2007 and 2012.