Middleton, 28, is the sister of Kate Middleton, who married Britain's Prince William last year. She met Percy, 27, when both were students at Edinburgh University.
Percy's family owns Alnwick Castle, which was transformed into the Hogwarts School of Witchcraft and Wizardry in the Harry Potter film franchise.
"George is very smitten and completely in love with her," a source close to Pippa Middleton told The Sun newspaper in London.
People.com said Middleton and Percy started dating after the Middleton family's New Year's Eve party.
"Pippa sat herself next to George at supper and made sure she was hanging off his arm all night," an insider told the Sun. "And then she made her move."