La Gazzetta dello Sport claims the Bergamo club are weighing up an approach for the 22-year-old, who has struggled to establish himself in Pep Guardiola's first-team plans despite his undoubted potential.
McAtee represents a tricky puzzle for City. The Salford-born playmaker came through their academy ranks and has never played for another club permanently, yet opportunities remain scarce at the top level. His two loan spells at Sheffield United - first in the Championship, then during their ill-fated Premier League campaign - provided valuable experience but haven't translated into regular starts back at his parent club.
This season proved particularly frustrating for McAtee. Just 15 Premier League appearances tell their own story, with only three coming from the opening whistle. For a player of his age and ambition, such limited involvement poses serious questions about his long-term prospects under Guardiola.
The contract situation adds another layer of complexity. With just 12 months remaining on his current deal, City face a decision point. Allow him to run down his contract and lose him for nothing, or cash in now while his value remains intact.
Atalanta believe they can offer what City cannot - guaranteed first-team football and Champions League exposure. The Bergamo outfit have built their reputation on developing young talent and giving promising players the platform to shine on Europe's biggest stage.
They face stiff competition, however. German clubs have shown particular interest, with Bayer Leverkusen, Borussia Dortmund, RB Leipzig and Stuttgart all mentioned as potential suitors. The Bundesliga's reputation for nurturing English talent makes it an attractive destination for McAtee.
Closer to home, Leeds United, Nottingham Forest and Crystal Palace are monitoring the situation. Each could offer regular Premier League minutes, though without the European football that might sway McAtee's decision.
Sources suggest City would demand around £25 million for McAtee's services - a figure that reflects both his potential and the club's reluctance to strengthen other Premier League clubs on the cheap. Whether Atalanta or any other interested party will meet that valuation remains to be seen.
For McAtee, the coming weeks could prove decisive. Stay at City and risk another season of sporadic involvement, or take the plunge elsewhere and finally get the chance to show what he can do week in, week out.