Sources said the deal could be completed as early as Friday.
"It's very, very close," one source said.
Final parameters are still being discussed, sources said, but one scenario on the table is a five-year deal worth in excess of $30 million with a team option in the fifth year.
After trading away veteran center Nene earlier in the day, Denver had more financial flexibility to offer the long-term deal Chandler has been seeking since returning from a stint in China earlier this month.
Denver signed Nene to a five-year deal worth nearly $70 million in free agency in December but quietly decided to start seeking trades for the oft-injured center in recent weeks to ensure it would have the down-the-road flexibility to bring back Chandler and retain prized point guard Ty Lawson when Lawson is eligible for an extension.
The unpredictable but talented JaVale McGee has replaced Nene as Denver's center, although it's clear the sudden success of the unheralded Kenneth Faried also gave the Nuggets sufficient comfort to part with Nene.
When March 1 passed without Chandler receiving an offer sheet from another team, his only options for this season were to re-sign with the Nuggets or sit out the rest of the season and become a restricted free agent again in July.