(AP Photo/Jose Luis Magana, File)
The move positions the court to have three female justices for the first time in history.
The source spoke on condition of anonymity because the decision had not been made public. Obama will announce his choice at this morning in the East Room of the White House.
Known as sharp and politically savvy, Kagan has led a blazing legal career: first female dean of Harvard Law School, first woman to serve as the top Supreme Court lawyer for any administration and now first in Obama's mind to succeed Justice John Paul Stevens.
At 50 years old, Kagan would be the youngest justice on the court, one of many factors working in her favor. She has the chance to extend Obama's legacy for a generation.
Kagan has clerked for Thurgood Marshall, worked for Bill Clinton and earned a stellar reputation as a student, teacher and manager of the elite academic world. Her standing has risen in Obama's eyes as his government's lawyer before the high court over the last year.
Yet Kagan would be the first justice without judicial experience in almost 40 years. All of the three other finalists she beat out for the job are federal appeals court judges, and all nine of the current justices served on the federal bench before being elevated.
Kagan's fate will be up to a Senate dominated by Democrats, who with 59 votes have more than enough to confirm her, even though they are one shy of being able to halt any Republican stalling effort.
For the second straight summer, the nation can expected an intense Supreme Court confirmation debate even though, barring a surprise, Kagan is likely to emerge as a justice.
Supreme Court justices wield enormous power over the daily life of Americans. Any one of them can cast the deciding vote on matters of life and death, individual freedoms and government power. Presidents serve four-year terms; justices have tenure for life.
Republicans have shown no signs in advance that they would try to prevent a vote on Kagan, but they are certain to grill her in confirmation hearings over her experience, her thin record of legal writings and her objections to the military's policy about gays.
When she was confirmed as solicitor general in 2009, only seven Republicans backed her.
Democrats went 15 years without a Supreme Court appointment until Obama chose federal appellate judge Sonia Sotomayor last year to succeed retiring Justice David Souter. Just 16 months in office, Obama has a second opportunity with Kagan, under different circumstances.
Obama's decision last year centered much on the compelling narrative of Sotomayor, the first Hispanic Supreme Court justice, who grew up in a housing project and overcame hardship.
This year, Obama particularly wanted someone who could provide leadership and help sway fellow justices toward a majority opinion. The president has grown vocal in his concern that the conservative-tilting court is giving too little voice to average people.
Kagan is known for having won over liberal and conservative faculty at the difficult-to-unite Harvard Law School, where she served as dean for nearly six years.
Her background, including time as a lawyer and a key domestic policy aide in Bill Clinton's White House, would give the court a different perspective.
The White House is expected to frame Kagan's lack of service as a judge in upbeat terms, underscoring that there are many qualified routes to the top of the judiciary.
Kagan emerged over three other finalists -- federal judges Diane Wood, Merrick Garland and Sidney Thomas. Wood, a veteran court presence in Chicago, has now come extremely close twice to being picked for the Supreme Court. She also interviewed with Obama last year.
Kagan, who is unmarried, was born in New York City. She holds a bachelor's degree from Princeton, a master's degree from Oxford and a law degree from Harvard.
She served as a Supreme Court clerk for one of her legal heroes, Justice Thurgood Marshall. And before that, she clerked for federal appeals court judge Abner Mikva, who later became an important political mentor to Obama in Chicago.
Kagan and Obama both taught at the University of Chicago Law School in the early 1990s.
In her current job, Kagan represents the U.S. government and defends acts of Congress before the Supreme Court and decides when to appeal lower court rulings.
Kagan has the high task of following Stevens, who leaves a legacy that includes the preservation of abortion rights, protection of consumer rights and limits on the death penalty and executive power. He used his seniority and his smarts to form majority votes.
As the Harvard Law School dean, Kagan openly railed against the military's "don't ask, don't tell" policy regarding gay service members. She called it discriminatory and barred military recruiters over the matter until the move threatened to cost the university federal money.
Kagan later joined a challenge to the law allowing colleges to be stripped of federal money if they kept out the military recruiters. But the Supreme Court upheld the law unanimously.
Kagan would be the fourth woman to serve on the Supreme Court, following current Justices Ruth Bader Ginsburg and Sonia Sotomayor and retired Justice Sandra Day O'Connor.
She would be the third Jewish justice along with six Catholics. With Stevens' retirement, the court will have no Protestants, the most prevalent denomination in the U.S.