The move essentially shuts out Microsoft Corp., which had been talking to AOL, a unit of Time Warner Inc., since January, the newspaper said.
The deal under negotiations would allow Google to collect revenue from ads that accompany the search results it would provide across AOL's properties, the Journal said, quoting a person close to the talks. AOL would sell display ads across Google's network of Web publishers.
Google also would include links to AOL properties among sponsored links in search results, and would continue to provide search to AOL for an additional five years, the newspaper said. The current contract is set to expire at the end of next year.
If the deal were finalized, it wouldn't occur until after Time Warner's board meeting Tuesday, the Journal said.
Microsoft had been trying to displace Google as AOL's Web search provider, and to create a joint advertising sales unit that would sell ads across the AOL and Microsoft MSN networks. Yahoo had also talked with AOL, but broke off negotiations in November.
Ken Cassar, an analyst with Nielsen/NetRatings, said a deal between Google and AOL would "shake up the search/portal space."
"For advertisers, it allows them to buy comprehensive packages that cut across the different forms of advertising, including search, display and contextually relevant links," Cassar said in an email. "In addition, now AOL's sales force has the ability to sell a wider array of online advertising."
In addition, the agreement would set "a major milestone in the escalating war between MSN and Google," the analyst said.
Microsoft has moved aggressively into the multi-billion-dollar online advertising market, and has named Google its top rival. Online advertising this year is expected to exceed $12 billion, substantially higher than last year's record of $9.6 billion, according to the Interactive Advertising Board, an industry trade group.
In terms of unique visitors, MSN topped Google and AOL in November with 91.4 million visitors versus 85.5 million and 74.3 million, respectively, according to Nielsen/NetRatings. Yahoo was the No.1 brand with 103.9 million unique visitors.