Williams has agreed in principle to a three-year contract, although some details are still being worked out.
The Hornets began negotiating with Williams on Friday when it became clear that another top candidate, Boston Celtics assistant Tom Thibodeau, wanted to explore other options. Thibodeau has accepted an offer to become the next head coach of the Chicago Bulls, a source told ESPNChicago.com on Saturday.
The 38-year-old Williams, who played at Notre Dame and then for several NBA teams spanning nine seasons, has been an assistant to Portland head coach Nate McMillan since 2005.
Portland was a playoff team this season after winning 50 games. However, in New Orleans, Williams takes over after a 73-game interim stint by Hornets general manager Jeff Bower, during which New Orleans finished 34-39 after losing star guard Chris Paul to ankle and knee injuries.
At 38, Williams supplants Miami's Erik Spoelstra (39) as the league's youngest head coach.
Williams' coaching stock has risen quickly after he got his start in San Antonio under Gregg Popovich during the Spurs' 2004-05 championship season. He joined the Blazers in August 2005 as an assistant to Nate McMillan and took on added responsibility this season when an Achilles injury restricted McMillan's mobility on the bench during games.
ESPN.com reported Thursday that the Hornets, even had Thibodeau accepted their offer, were hoping to hire Williams as an associate head coach to Thibodeau.
The Hornets' search began with ESPN analyst and New Orleans native Avery Johnson -- widely regarded as the favorite in a process that included interviews with eight candidates.
But Johnson has instead emerged as a finalist for the Atlanta Hawks' vacancy along with Dallas Mavericks assistant coach Dwane Casey. Johnson is also a strong contender in New Jersey, with two of the Nets' other top targets -- Thibodeau and ESPN/ABC's Jeff Van Gundy -- possibly out of the running.
Information from ESPN.com's Marc Stein and The Associated Press contributed to this report.