Manning, 35, has spent 14 years with the Colts, but missed the entire 2011 season due to neck problems that required multiple surgeries.
The report said a news conference will be held Wednesday to make the announcement. Manning would collect a $28 million bonus from the team if he was on the Indianapolis roster at the end of this week.
Manning will become a free agent upon his release. Miami and St. Louis have been mentioned as teams that might be interested in his services if he is healthy enough to play.
Manning was the No. 1 selection in the 1998 draft and started every game for the Colts for 13 years, leading Indianapolis to nine straight winning seasons and a Super Bowl title at the end of the 2006 campaign.
His absence last year was a major factor in the Colts tumbling to a 2-14 record, leaving them with the top pick in this year's draft. Indianapolis is expected to take Stanford quarterback Andrew Luck with that pick.
During his tenure with the Colts, Manning threw for 54,828 yards and 399 touchdowns. Until his neck injury, he was on pace to break most of the NFL career passing records currently held by Brett Favre.