Walters, 83, is expected to announce her retirement to viewers herself in the coming weeks, the source said.
"It was very much her decision. I think she will best explain it herself," the source told Reuters.
ABC will broadcast a series of specials and tributes to Walters in the weeks before her exit, the source added.
ABC News executives declined to comment.
Walters, the creator and host of ABC's all-women talk show "The View," had open heart surgery in 2010.
She fainted, hit her head and suffered a concussion in January, and was then diagnosed with chicken pox, causing her to miss more than a month of work.
Walters is best known as one of the top interviewers on U.S. television, counting an array of world leaders as subjects, including Cuba's Fidel Castro, Britain's Margaret Thatcher, Saddam Hussein of Iraq and every U.S. president since Richard Nixon.
She got her start in television journalism in 1961 as a writer on NBC's "Today," a show she would later become the first woman to co-host.
In 1976, she became the first woman to co-anchor a television evening news broadcast on any U.S. network for "ABC Evening News.
" Walters has also worked as a producer and host of the ABC news magazine "20/20" and as a correspondent for ABC News.