The former Southampton forward, who is in the final six months of his current contract, rejected a five-year offer worth £75,000 a week in August.
But the uncertainty over his future is now set to come to an end, with a deal agreed in principle following talks between the club and their top scorer's advisors on Thursday.
Manager Arsene Wenger said he hoped for a conclusion before Sunday's visit to Chelsea and, after a string of protracted transfer sagas involving his players, can finally celebrate a satisfying one.
Robin van Persie, Samir Nasri and Cesc Fabregas all left the club after months of speculation.
But Walcott has committed to the club that signed him from Southampton as a 16-year-old in 2006.
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