Last season, Townsend contributed two goals and seven assists from his 36 outings in the Premier League, with the attacker playing an influential role in Palace's survival in the top flight.
According to The Mirror, Newcastle have decided to launch a bid of £20m for the England international, who has previously spent time at St James' Park.
Before moving to Palace for £13m in 2016, Townsend netted four goals in 13 top-flight outings for the Magpies and only left the club due to their relegation to the Championship.
However, while Newcastle are seemingly prepared to spend big in order to secure a reunion, Palace are said to remain keen on keeping the attacker ahead of next season.
Townsend still has three years remaining on his contract.