Citing anonymous sources, ESPN reported Tuesday that the Colts planned to release the four-time MVP rather than pay him a $28 million bonus, making him a free agent.
A news conference to announce the decision was expected Wednesday, the network said.
Colts spokesman Avis Roper said he could not confirm the report because Irsay was out of town and could not be reached for comment. Neither Irsay nor Manning's agent, Tom Condon, responded immediately to messages left by The Associated Press.
Peyton's older brother, Cooper, told the AP in a brief phone interview that he couldn't confirm his brother was leaving the Colts.
"I don't know anything," he said.
Word of the impending breakup - though not unexpected - still caught one of Manning's closest friends, center Jeff Saturday, off guard.
"I never thought it was a foregone conclusion," Saturday said. "I was always hopeful they'd get something worked out, and that he would be back in a horseshoe, but it doesn't look like that's going to happen."
That's what Manning wanted, too.
He had said in the past that his goal was to play his entire career in a Colts uniform, but a damaged nerve that forced him to have neck surgery kept him out of action for all of 2011.
"I can't tell you what an honor it is to go start-to-finish with the same organization here in Indianapolis. That is something I have always wanted to do as a rookie coming out," Manning said in July, after signing a five-year, $90 million contract. "Of course, you never know if that is possible, but after yesterday it is official that I will be an Indianapolis Colt for my entire career. I will not play for another team. My last down of football will be with the Colts, which means a great deal to me."
But things changed since last summer. Now it appears as though the Super Bowl champion won't be wearing No. 18 for Indy.
The question now, if he indeed goes, is where Manning might land if he is no longer a Colt.
It's still possible, however unlikely, that Manning could return to Indy for a lower price if he can prove he's healthy.
"This isn't an ankle, it isn't a shoulder. Often times the NFL is criticized for putting someone out there at risk, and I'm not going to doing that," Irsay said in January. "I think he and I just need to see where his health is because this isn't about money or anything else. It's about his life and his long-term health."
But based on some back-and-forth comments made by Manning and Irsay of late, indications were that the two were squabbling.
Manning's impending departure marks the end of a remarkably successful era that included the 2006 league title.
He started every meaningful game for 13 seasons in Indy, 227 straight including the playoffs, and took the Colts from perennial also-ran to one of the NFL's model franchises.
Indy broke the league record for most regular-season wins in a decade (115), tied Dallas' league record for most consecutive playoff appearances (nine) and the success changed Indy from a basketball town to an NFL town.
Manning is one of four players with more than 50,000 yards passing, one of three with more than 350 touchdown passes and one of two quarterbacks with more than 200 consecutive starts. He broke all of the franchise's major career passing records, previously held by Hall of Fame quarterback John Unitas, and he may not be finished.
Then, after making an early playoff exit in the 2010 season, Manning underwent another neck surgery to repair a damaged nerve that was causing weakness in his throwing arm.
When the nerve did not heal as quickly as expected, Manning had two vertebrae fused together in September, a surgery that forced him to miss the first game of his career. There are still questions about the strength of Manning's arm.
Still, he has insisted he plans to play football next season.