The source said President Francois Hollande's administration is poised to announce a plan in which it will offer the troubled automaker $9 billion in credit guarantees in exchange for saving thousands of jobs that the company was planning to shed, the Times reported Tuesday.
Peugeot faces rising borrowing costs after the Oct. 12 downgrade of the company's credit rating by Moody's Investors Service.
Fitch Ratings has also downgraded the company's rating.
While that will make it more difficult for Peugeot to compete with other automakers, the move to provide credit guarantees, which should give investors more confidence in the company, is expected to be challenged by other automakers who will say the French government's intervention is unfair to them.
As part of the deal, the government is expect to include a demand that it be given a seat on the company's board of directors.
The auto industry in Europe is caught up in a continent-wide slump. Auto sales in Europe were down 10.8 percent in September compared to September 2011.
Peugeot has been stumbling for some time, in part due to its line up of low margin vehicles.
In February, it sold 7 percent of its stock to General Motors. That deal thrust GM into the position of being the automaker's second largest shareholder after the Peugeot family.