News that the "Annie" and "Sex Tape" star is affianced came via Us Weekly and its "multiple sources" on Friday.
Reps for Diaz, 42, and Madden, 35, did not immediately respond to Los Angeles Times requests for comment.
"Benji always tends to fall in love easily, but this time it's for real and he landed a great girl," a source told the mag. "They obviously both make each other incredibly happy and there's nothing better than that."
The couple, who were friends long before dating, first stepped out together in May and have been spotted together several times since. In July, Madden's self-proclaimed "devoted sister-in-law" Nicole Richie told Andy Cohen that she "takes responsibility" for setting them up.
Engagement rumors began swirling in October, when the actress accessorized with an elaborate bauble on her ring finger at the Hollywood Costume exhibition. Multiple rings have taken up that symbolic real estate while she promoted "Annie" this month.
In the November issue of Marie Claire, Diaz said she wasn't totally opposed to the idea of marriage but indicated that it wasn't a priority.
"I'm not looking for a husband or marriage or not not looking for that stuff," she told the mag. "I'm living, not thinking what I should or shouldn't be doing with my life."
Diaz also deflected the rumors during her feature interview for Cosmopolitan's forthcoming January issue, philosophizing on love instead.
"You have to find someone in the same place as you are. Timing is everything," she told the mag. "If you get into a relationship where you want something the guy doesn't want, it's never going to work. You're never going to get him to be in that place. No matter how old you are, finding the guy who's in the same place as you are and wants to show up is the only way a relationship works, period."
Earlier this month, she added that she's "never said never to anything," and that includes getting hitched, E! News reported.
If the latest report is to be believed, it'll be the first walk down the aisle for both Diaz and Madden.
The leggy "Charlie's Angel" alum previously dated singer Justin Timberlake, Oscar winner Jared Leto, actor Matt Dillon and major league baseball star Alex Rodriguez.
The guitarist, who is a mamber of the Madden Brothers with brother Joel Madden, was previously engaged to Australian actress Sophie Monk. He also dated Richie's "The Simple Life" costar, heiress Paris Hilton, and Hugh Hefner's now-married ex, Holly Madison.
There's something about that ring finger. Follow me on Twitter @NardineSaad.