Fender, 69, had been getting treatment for cancer in Oklahoma but was transferred to a hospital in San Antonio last week because of a blood infection.
"He's not doing too good," said his wife, Vangie Huerta. "It's kind of like — we just got back yesterday and it's kind of breaking us."
Ron Rogers, who has acted as a spokesman for Fender, said the musician had talked about making a public statement but hadn't been able to yet.
"Of course he's ill, gravely ill, and he's at home resting," he said.
Born Baldemar Huerta in 1937, Fender has won three Grammies, the most recent in 2002. He started his career in the late 1950s and hit the charts with "Before the Next Teardrop Falls," "Wasted Days and Wasted Nights" and "You'll Lose a Good Thing." In the 1990s he was a member of the Tex-Mex supergroup Texas Tornados.
He was to have surgery in January to remove the upper left lobe of his lung because of a fungal infection, but surgeons found two large tumors and left the lobe intact. Doctors last month told Fender the cancer had spread from his left lung to his body.
Fender, who has had problems with diabetes and hepatitis C, received a kidney from his daughter in 2002 and a liver transplant in 2004.