More than a million NHS staff, including nurses, porters and paramedics, could expect average pay increases of about 6% over three years, the BBC understands.
The deal, which is expected to be formally agreed by unions and ministers later, could cost the Treasury as much as £4bn.
If approved, workers could see their pay increase in the summer.
The deal could pave the way for other public sector pay rises.
The BBC's Laura Kuenssberg understands the idea is that the lowest paid will get the biggest hikes, with those on the lowest wages receiving the most significant rises.
A porter's salary, for example, could rise from £15,000 to £19,000.
And contrary to recent suggestions, she says, the unions and the government won't force staff to give up a day's holiday in return for bigger pay rises.
But insiders have told her that the deal does include an agreement for staff and the Department of Health to look for ways of reducing rates of sickness in the NHS and changes to automatic pay rises, so called increments.
It is understood the biggest health unions – Unison and the Royal College of Nursing – are ready to give the plan their backing.
The government first announced it would lift the public sector 1% pay cap in September for police and prison officers.
Ministers were then told they would get "flexibility" to breach the longstanding 1% limit for the first time since 2010.
The NHS has been under pressure to retain staff, after it was revealed that one in 10 nurses were leaving the public sector in England every year.
The Royal College of Nursing claims average nurse pay has fallen by more than 14% in real terms.
Statistics from NHS Digital showed 33,000 nurses walked away in 2017, piling pressure on understaffed hospitals and community services.
Treasury puts its money where its mouth is
By Laura Kuenssberg, political editor
The government indicated some time ago that the pay cap, which had been one of the main restrictions that held back public spending, was over.
But this deal could pave the way for expensive, even if overdue, pay deals for other parts of the public sector.
Crucially, sources say the deal will be fully funded by the Treasury, rather than coming out of existing NHS budgets.
The precise detail of what ministers say will therefore be vital. But the move is likely to add to the growing sense, including in Tory party, that somehow, more cash for the health service needs to be found.