Balotelli uploaded a picture of the video game character Super Mario, with whom the Italy international shares a nickname, with text around the image including "jumps like a black man and grabs coins like a Jew."
"We are aware of it and we are looking into it," the FA said Tuesday. The Professional Footballers' Association (PFA) said the incident "reinforces the need for continued education" for footballers who use social media.
"The situation regarding Mario Balotelli's Instagram post... highlights how vigilant players need to be in all of their dealings with social media," the PFA said in a statement.
"We strongly condemn all discriminatory language used in any context. We are working with clubs and the FA to ensure players are aware of the impact of inappropriate and unacceptable language regardless of the forum."
Balotelli, who has been subjected to racial abuse on numerous occasions, posted the image of the computerized character on Monday with the heading "Don't be a racist."
The text also read: "Be like Mario. He's an Italian plumber, created by Japanese people, who speaks English and looks like a Mexican."
Balotelli tried to defend the post as criticism began to intensify online by writing on Twitter: "My Mom is jewish so all of u shut up please."
But he soon deleted the image from his Instagram account before further backtracking on Tuesday.
"I apologize if I've offended anyone. The post was meant to be anti-racist with humour," Balotelli wrote on Twitter. "Not all Mexicans have moustache, not all black people jump high and not all Jewish people love money.
"I used a cartoon by someone else because it has Super Mario and I thought it was funny and not offensive. Again, I'm sorry."