The source spoke on condition of anonymity Thursday night because the surprising move by new team owner Joe Lacob likely won't be announced until the start of the Warriors' training camp next week.
The 70-year-old Nelson has a record 1,335 victories in 31 seasons coaching Milwaukee, Golden State, New York and Dallas. The former Boston forward won five championships largely as a sixth man with the Celtics, but he has never led a team to a title or even reached the NBA finals.
He passed Lenny Wilkens' NBA record of 1,332 wins on April 7, near the close of the fourth season in his second stint with the Warriors. Golden State finished 26-56 last season.
The source wasn't certain whether Nelson technically would resign or be fired, but the sometimes-litigious coach is expected to be paid the full $6 million he's owed for the final year of his contract.
Nelson and general manager Larry Riley didn't immediately return phone calls seeking comment. Riley was Nelson's assistant coach until the 2008-09 season, when he took over personnel decisions while the Warriors phased out top basketball executive Chris Mullin.
The Warriors waited until the final days before camp to make a major change under new owners Lacob and Peter Guber, who bought the club for a record $450 million in July from Chris Cohan, the long-reviled owner who's blamed by Bay Area fans for the franchise's absence from the playoffs in 15 of the past 16 seasons.
Nelson was hailed when Mullin hired his former coach to return to Golden State in 2006, and Nelson immediately led the Warriors into the postseason, where the eighth-seeded club upset the top-seeded Dallas Mavericks in 2007. Golden State then won 48 games but barely missed the playoffs after the 2007-08 season.
Golden State won just 55 games over the past two seasons while dismantling the core of the 2007 and 2008 teams led by Baron Davis and Stephen Jackson. Nelson was criticized for sticking with his style of run-and-run offense and little defense, while some young players got extensive minutes and others never got off the bench.
The sale is expected to be ratified by the NBA later this year, but Lacob and Guber already are heavily involved in running the Warriors.
Nelson is a three-time NBA coach of the year, but he's also the only coach with more than 1,000 career victories who hasn't been enshrined in the Basketball Hall of Fame.
His teams won at least 50 games in 13 seasons, but he also went through several lows — notably a tumultuous 59-game stint with the Knicks in 1995-96.
Nelson began his career as coach and general manager of the Bucks in 1976, making the playoffs nine times in his 11 seasons. He took over the Warriors in 1988 and immediately installed the uptempo offense that led to the "Run T-M-C" era of exciting hoops led by Tim Hardaway, Mitch Richmond and Mullin.
But Nelson clashed with No. 1 overall draft pick Chris Webber and eventually left the Warriors during the 1994-95 season. After a short stint on Broadway, he took over the struggling Mavericks in 1998 and transformed them into a playoff team by his fourth season, surviving a bout with prostate cancer along the way.
Dallas reached the Western Conference finals in 2003, losing to the San Antonio Spurs. His parting with the Mavericks in March 2005 eventually turned acrimonious, with Nelson and owner Mark Cuban eventually getting involved in litigation over Nelson's compensation.