Trotters boss Sam Allardyce confirmed on the club's official website, "The contract situation with Kevin Davies is all agreed now. He will sign his contract next week, when his agent returns from holiday."
"Negotiations have been quite drawn out, but I'm pleased we are finally there now.
"Like every manager you have great fears when a player moves into his final year of a contract on whether he will sign.
"I'm delighted that he has committed his long-term future to us. He is a player that would be extremely difficult to replace."
The Wanderers boss also hopes to conclude a deal to bring Birmingham midfielder David Dunn to the Reebok Stadium within the next 24 hours.
"David had a very severe back problem a couple of years ago. That's been dealt with by surgery," Allardyce said.
"Steve (Bruce) at Birmingham has decided to move him on for whatever reason and our concern would be the medical.
"After the medical, as long as the financial negotations continue, we can get to a conclusion on that.
"I hope there's nothing from the medical side to stop this transfer."
Meanwhile, Sam Allardyce has admitted he is resigned to losing Tal Ben Haim, with West Ham, Portsmouth and Chelsea all chasing the young defender's signature.
Allardyce said, "He won't sign a contract. It is a great shame it has gone beyond that now.
"We'll just have to wait and see what will happen.
"I don't think he'll move this month. He is likely to see out his contract and he'll be off and away in the summer.
"As a player you can use the rules and regulations and you can't blame him for that."