Gibbons led the Blue Jays to an 87-75 record and a second-place finish in the AL East last season _ the first time they finished higher than third since winning the World Series in 1993.
The team official spoke on condition of anonymity because the deal hasn't been announced yet.
Gibbons will make $500,000 this year, one of the lowest salaries for a manager in the majors. The extension covers the 2008 season.
Gibbons might have cost himself a longer extension after getting into altercations with infielder Shea Hillenbrand and pitcher Ted Lilly last season. He is 187-187 since replacing manager Carlos Tosca in August 2004.
General manager J.P Ricciardi, who played in the minor leagues with Gibbons, gave him a one-year contract at the end of the 2004 season and a two-year extension in April, 2005.
Gibbons, a former catcher who had 50 career at-bats in 18 games with the New York Mets in 1984, '86 and '87, spent seven seasons as a minor league manager with the Mets, working his way up to Triple-A Norfolk. He compiled a 482-420 record in the minors, then joined Toronto as its bullpen catcher in 2002.
Ace Roy Halladay and center fielder Vernon Wells have endorsed Gibbons publicly.