Subotic is regarded as one of the best young defenders in Europe after impressing at Dortmund since arriving from Mainz in 2008.
The Serbia international has attracted interest from the likes of Chelsea, Manchester United, Manchester City and Arsenal after establishing himself as a key man at Dortmund.
The 23-year-old's current deal expires in 2014 and Dortmund are keen to ward off any suitors by offering fresh terms.
Dortmund are hoping to keep hold of the centre-back and talks are thought to be at an advanced stage regarding a two-year extension to keep him at the Westfalenstadion until 2016.
The news will be a major blow to Subotic's Premier League suitors with Chelsea and Manchester United linked with fresh moves for the player in January.
Don't miss any live and exclusive football coverage this festive season. Click here to visit Sky Sports' Festive Calendar