The Yankees said representatives for Pettitte, who has indicated a preference to play for New York if he came back for a 16th season, told them he wants to return for 2010.
ESPN The Magazine's Buster Olney first reported Pettitte's decision to return.
For the 37-year-old, it's now just a matter of working out a deal with the Yankees, the sources told Olney at baseball's winter meetings Monday morning.
New York was prepared to make him an offer upward of $10 million, a baseball official familiar with the talks told The Associated Press. The official spoke on condition of anonymity because talks were ongoing.
"I've been told in the right circumstances he wants to pitch," Yankees general manager Brian Cashman said.
Yankees manager Joe Girardi, speaking at a charity event Monday, said pitching is what the Yankees need to address "first and foremost."
Girardi said he spoke with Pettitte late last month and thought Pettitte wanted to continue playing.
"I told him to enjoy his holiday," Girardi said of Thanksgiving. "I knew he was to going to make a decision fairly quickly. By playing all the way up to November 4th, this time gets here really quickly.
"I said, 'Enjoy your vacation and you'll make the right decision.' "
Pettitte was 14-8 with a 4.16 ERA in helping propel the Yankees to their 27th World Series championship, bringing his career record to 229-135 with a 3.91 ERA.
He went 4-0 in five starts in the postseason with a 3.52 ERA.
With 458 career starts, Pettitte has spent all but three seasons with the Yankees. He played for the Astros from 2004 to '06.
Information from Andrew Marchand, the managing editor of 1050 ESPN Radio in New York, and The Associated Press was used in this report.