The 25-year-old sweeper will receive EGP 750,000 in his first season at the Cairo club, with a 100,000 yearly addition until the end of his contract.
Zamalek officials struck the deal with their Mahalla counterparts late on Monday, and they are on the process of obtaining the player's VISA in order to catch up with the team's training camp in France.
The highly rated defender was on the verge of joining Zamalek's arch rivals Ahli, but the deal fell through and the Whites managed to snap him up.
According to Mahalla football director Ali Al-Abbasi, the Ahli deal was not completed because the Egyptian champions refused Mahalla's EGP 3 million asking price
Fathallah is the fourth defender to join Zamalek this summer, following the arrival of Beshir Al-Tabie, Karim Zekri and Jordanian international Khaled Saad.