The deal is "a little bit squishy" though it's "moving closer to reality," the source said.
The source said an announcement about the arena, which could host Blue Demons basketball games, should be coming later this week.
DePaul students responded positively to the possibility of an arena in Chicago.
Mike Cione, a 20-year-old sophomore, said the new arena would attract more students.
"Anything's better than what we have. That's why no one goes to the games," Cione said. "I think more [students] will go because it's train-accessible."
The DePaul's men's basketball program has played at Allstate Arena (formerly known as the Rosemont Horizon) since 1980. The Blue Demons finished last season 11-21 overall and 2-16 in the Big East Conference.
Freshman guard Durrell McDonald said a new stadium could bring more students and alumni to the games, while giving the school a larger stage to attract recruits.
"Sometimes we do talk about it," McDonald said about playing in Rosemont. "We just play where we've got to play."
The Sun-Times reported that $100 million of the funding would come from state taxes. The source said that was "inaccurate" and that state officials would not discuss any scenarios for state funding.
Rather, the arena could be paid for through the Metropolitan Pier and Exposition Authority bond fund, financed through local hotel/motel taxes, the source said.
"Mayor Emanuel has said repeatedly that a vibrant convention industry and the thousands of jobs it supports are critical to Chicago's economic future," according to a statement from mayor's office. "When there is something to announce, we will announce it."
A DePaul spokeswoman refused to comment.
"When we have something substantive to announce, we will," she said.
Last year, DePaul announced plans to move from the Allstate Arena back to the city and has been reportedly looking at the Prairie Blocks site near the McCormick Center.
Many South Loop residents criticized the plans at a community meeting in March.
DePaul balked at a deal with the United Center, which would give them free rent for 10 years, plus all ticket revenue, in exchange for sharing digs with the Bulls and Blackhawks.
Reached in Greece by phone, DePaul women's basketball coach Doug Bruno declined to comment and said he was not aware of the latest developments.