The Independent understands that talks are set to begin in the coming weeks with the club confident that James, who is seen as a natural successor to Cesar Azpilicueta, will commit his future.
The 19-year-old enjoyed a standout season on loan at Wigan this year before rejoining the first-team squad at Chelsea and made his debut in a friendly cameo against New England Revolution last week.
The England U20 international has three years remaining on his current contract, however, the Blues are keen to offer the versatile teenager improved terms and guarantees of first-team opportunities next season as they face the prospect of a two-window transfer ban.
Current reserve right-back Davide Zappacosta is set to depart in the summer.
A number of clubs have followed James over the course of his breakout season, including Manchester United, who tracked the teenager for a number of months, and a number of Bundesliga sides.
He was selected in the Championship team of the year despite Wigan’s relegation struggle and featured in every league game, even wearing the captain’s armband on his final appearance.
James previously captained Chelsea’s all-conquering youth team, featuring Callum Hudson-Odoi and Jonathan Panzo, now of Monaco, to back-to-back U18 Premier League and FA Youth Cup titles.