The Sun claim the Everton legend was offered the chance to join his former boss in Madrid but he turned it down.
They report: “But Big Dunc, 49, thinks he is ready to step up as manager and hopes owner Farhad Moshiri picks him.
“He has also teed-up old team-mate Lee Carsley as his No 2 if he gets the nod.”
Ferguson made 30 appearances and scored eight goals during a spell at St James’s Park between 1998 and 2000 before rejoining Everton, were he ended his playing career.
He has since been on their coaching staff and is keen for the top job, according to weekend reports.
Clearly the former Newcastle United striker had made an impression on Ancelotti during their time working together at Goodison.