The singer is planning on leaving the talent competition where she has served as the judge for the past two seasons.
"She plans to spend next year completely focused on her music," the source said. "She had a great run and a good time."
Lovato has an international arena tour kicking off on February 9, and recently said she was looking forward to taking a bit of a break.
"I will take the month of January completely off!" she said in November. "I want to vacation! I want to watch crime shows on my DVR on my couch... I need to do some exercising and I don't really have time to do it. I love horseback riding and never get to do that stuff, but January is my time to do all of that."
The X-Factor's third season comes to a conclusion this week, with its finals and results shows on Wednesday and Thursday.