The 37-year-old actress, who ended her ten-year marriage to Tom Cruise in August 2001, is planning a lavish ceremony but will only invite close family and friends.
A source tells British newspaper The Sun, "Nicole is getting married in March. She's the happiest she's ever been in her life and she doesn't want a long engagement.
"Keith proposed at Christmas (05) and she was thrilled. They are happy and in love.
"Nicole's only inviting close friends and family - she doesn't want a media circus. They are discussing venues and are talking about doing it in Australia."
Meanwhile, Cruise and his pregnant fiancee Katie Holmes are planning a summer (06) ceremony, following the birth of their first baby together.