Japan Display wants Apple to shoulder much of the expected 200 billion yen ($1.7 billion) investment in the plant, which aims to be in operation next year, the source said on condition of anonymity as the talks remain confidential.
When asked to comment on the matter, Japan Display said it was constantly pursuing opportunities but "no formal decision has been made regarding any matter that we need to disclose".
A source said the mostly likely site for the plan is in Ishikawa, located in central Japan. It would have a higher capacity than an existing plant in Mobara which makes 50,000 1.50mx1.85m sheets for iPhone 6 displays.
Last year, CEO Shuichi Otsuka said the company needed a new plant as it was nearing full capacity.
Apple has entered this type of investment in the past; however, its most recent investment in purchasing a facility to make sapphire crystal ended spectacularly after GT Advanced failed to meet production goals and subsequently declared bankruptcy.
Please follow iClarified on Twitter, Facebook, Google+, or RSS for updates.