The 'Skyscraper' star is set to be added to the panel - alongside Britney Spears, Simon Cowell and L.A. Reid - when the show returns in the Autumn.
According to TMZ.com, Demi and Britney will officially announce their additions to the show in New York when they appear on TV Show 'FOX Up Fronts'.
While no details as to how much Demi's contract is worth have been leaked, Britney is thought to have negotiated a $15 million pay packet to be a panellist on the show.
Britney and Demi will replace Paula Abdul and Nicole Scherzinger - who were axed after poor ratings on last year's debut series - sitting alongside show boss Simon and music executive L.A.
It has previously been reported Britney, 29, was keen for Demi to join her on the series.
A source said: "Britney is extremely hopeful that Demi will become one of the judges because she truly admires her. Britney loves how open and honest Demi has been with her fans. She thinks they have a lot in common and that they would have great chemistry on the show."
Demi, 19, has been making a comeback since she was admitted to rehab in 2010 for help with an eating disorder, self-harm and depression, problems which she claims started when she was just 12.
Talking about her tormentors, she has said: "They called me a whore and told me I was fat and ugly. I shouldn't have listened, but I took it to heart and it hurt. I thought maybe I didn't have friends because I was too fat."
Demi reportedly beat Miley Cyrus to claim her spot on the show. While she is touring this summer, her team say 'X Factor' won't clash with her schedule.