The current four-times titleholders will leave the sport at the end of the year, says respected magazine Autosport. Audi announced last week it was quitting the World Endurance Championship.
Volkswagen will pull out of the world rally championship at the end of the season having only just won a fourth successive title, top motor sports publications reported on Tuesday.
Autocar and Autosport magazines quoted sources as saying the decision was taken at a board meeting in Wolfsburg. The German car maker is expected to make an announcement on Wednesday. The firm did not respond when asked for comment on Tuesday.
"The priority is to advise our employees of the plans first," Autocar quoted a senior source as saying. "We will then make the decision to pull out of the WRC public. Until then, there will be nothing official."
Europe's biggest car company has been embroiled in an emissions scandal that is set to cost billions of dollars.
Volkswagen's world rally team has won the drivers' championship for the last four years thanks to France's Sebastien Ogier.
Audi, part of the Volkswagen group, said last week it was quitting the World Endurance Championship and Le Mans 24 Hours race to concentrate on the all-electric Formula E series.