In an election which will be about change, so-called "hockey mum" Ms Palin has a reputation for government reform and an approval rating higher than 80%.
The 44-year-old former runner-up of the 1984 Miss Alaska beauty pageant would be the second female vice-presidential nominee of a major party, following Geraldine Ferraro as Democratic nominee in 1984.
Senior campaign officials confirmed Mr McCain's decision to US media outlets, including CNN and Fox News.
Mr McCain, who will officially confirm his running mate at a rally in Ohio later today on his 72nd birthday, reportedly chose Ms Palin as his vice presidential nominee yesterday, but the decision has been shrouded in secrecy.
Speculation only moved to mother-of-five Ms Palin, who, like Mr McCain calls herself a maverick and was considered an outside bet, after airport officials confirmed a private plane flew from Alaska into Middletown Regional Airport in Butler County, near Cincinnati, Ohio, ahead of the official announcement in the state.
She is pro-life, a fiscal and social conservative and holds a lifetime membership with the National Rifle Association.
Ms Palin also hunts, eats moose burgers, ice fishes, rides snowmobiles, owns a float plane, according to US reports.
She rose to attention in Alaska after blowing the whistle on ethical violations by state Republican Party leaders and was elected in 2006 after beating the incumbent Republican governor in the primary and a former Democratic Alaskan governor in the general election.
Democratic nominee Barack Obama is making an aggressive play for the traditional Republican stronghold of Alaska and its three electoral votes, and polls show the race is close.
Minnesota governor Tim Pawlenty, former Massachusetts governor Mitt Romney, former Pennsylvania governor Tom Ridge, and Democrat-turned-independent Joe Lieberman were among others thought to be considered for the job.