According to sources, the extension is for three years with a fourth-year option and will pay Williams the maximum allowed by the NBA's collective bargaining agreement. The earliest Williams would become a free agent would be the summer of 2012.
The exact value of Williams' extension won't be determined under the NBA sets its salary cap next July. But Williams will earn approximately $50 million the first three years and as much as $70 million if he exercises the option.
The Jazz are expected to hold a Friday afternoon news conference to announce the extension.
"I know everybody has worked very, very hard toward reaching an agreement," McClaren said. "It'll be fun to talk about it tomorrow."
Although the Jazz had hoped Williams would agree to a five-year extension, the longest allowable, Williams ultimately decided to follow LeBron James, Dwyane Wade and Chris Paul in opting for the shorter deal.
Williams was concerned about the Jazz's future with Carlos Boozer, Mehmet Okur and Kyle Korver all able to opt out of their contracts and become free agents next summer as well as Jerry Sloan's desire to continue coaching beyond this season.
There was added uncertainty with Jazz owner Larry Miller having been hospitalized since June 10 with complications from diabetes. Williams also can return to the free-agent market sooner thanks to the shorter extension.
But Williams expressed a clear desire to remain in Utah during negotiations and is said to see the extension as another highlight in a summer filled with them.
Williams recently bought a house in Salt Lake City and has remained in town much of the summer. He worked out Thursday morning with the Jazz's summer-league team, tipping off reporters that a deal was close when he said: "See y'all tomorrow."
McClaren would only say that Williams has decided to "continue his great partnership with the Jazz" when asked how many years the extension would run. Williams is expected to attend Friday's game at the Rocky Mountain Revue.
Williams had wanted to sign the extension before leaving Sunday for Olympic training camp in Las Vegas. McClaren said that he and Jazz general manager Kevin O'Connor have agreed on the extension but have not yet signed the deal.
O'Connor had yet to return messages Thursday afternoon.
Although Paul was able to reach agreement with the Hornets in a matter of days, Williams' extension dragged on for more than two weeks. Williams did take a family vacation to Mexico and the Jazz did work to involve Miller during talks.
Williams is coming of a season in which he was selected second-team all-NBA, averaging 18.8 points and 10.5 assists. The Jazz again were one of the youngest playoff teams in the league and Williams has missed only four games in his three-year career.