The 34-year-old former England captain had been set to hang up his boots at the end of this campaign in May but has been persuaded to stay for next season by Newcastle boss Graeme Souness, who took over from Bobby Robson in September.
The Premier League club is due to hold a news conference at 0800 GMT to confirm the striker's decision.
Lifelong Newcastle fan Shearer is only nine goals behind 1950s striker Jackie Milburn's club record 200 goals and the chance to break the record next season if not this term has proved too tempting.
He amassed 63 caps scoring 30 goals but retired from international football after a disappointing Euro 2000 and when Sven-Goran Eriksson later took over as coach the Swede tried to make Shearer change his mind but to avail.
He began with Southampton in 1988 before moving to Blackburn Rovers for 3.6 million pounds in 1992 where he won his only career medal when they claimed the league title in 1995
REJECTED OVERTURES
He then rejected the overtures of Alex Ferguson at Manchester United and signed for hometown club Newcastle for a then world record 15 million pounds in 1996.
He was the Professional Footballer's Association Player of the Year in 1994/95 and 1996/97 and is the only Premier League striker to have notched over 200 goals. He is now on 250.
The championship medal at Blackburn is all Shearer has to show for an illustrious career but Newcastle are still in the FA Cup semi-finals and UEFA Cup quarter-finals as they bid to increase their captain's collection of silverware.
With striker Craig Bellamy on loan at Celtic after falling out with Souness and Dutch forward Patrick Kluivert failing to impress in his first season at St James' Park, Shearer became too important for Newcastle to allow him to walk away.
Shearer has been touted as a future Newcastle manager but has signalled his intention to work in the media when he does retire.