Caucus will also elect a deputy - Luxon's preference was understood to be Nicola Willis but it is possible that has changed after his talks with Bridges. It is likely Bridges will be given the finance portfolio.
It is a big move for Luxon, who has only been in Parliament for a year.
The former CEO of Air NZ has long been touted as a future leader and is a close friend of former PM John Key.
Key has been urging others to support Luxon, believing he was the party's best chance of rallying after a turbulent few years.
Earlier today, chances of a deal to avoid a vote on the leadership seemed unlikely - the pair were expected to talk this morning but the Bridges' camp believed the vote was still too close for him to pull out.
There had been a lot of pressure on the two to reach an agreement rather than contest the leadership so that the new leader would have a strong mandate. Sir John Key was among those calling for it.
One MP said the second-best option had been talks between the two for an entente cordiale after the contest – an agreement on which roles the other will have once the outcome of the contest was known.
As MPs arrived at Parliament earlier National MP Stuart Smith said he believed Luxon had enough experience for the role, although would not say if he was backing him..
He pointed to the "people management" skills Luxon had from his previous role as chief executive of Air NZ, saying it was also a skill needed in politics.
He said the last week had taught them some lessons.
"I think we've all learned some lessons along the way and good behaviour on the part of all the members of caucus is an essential thing to have happen."
Fellow MP Chris Penk said was happy to support whoever became the leader.
He believed National was in "a more healthy position now" than it had been last week, but "we can and we must" unite behind a new leader.
"I think the same lesson applies now as it has for a couple of years, which is if we talk about the things that matter to New Zealanders we'll be okay, but if we don't then we will be lost. So we have to get back to focusing on those things that matter."
MPs urge unity
MPs arriving at Parliament were staying quiet about their own choices, but urged unity.
Nicola Willis would not comment on whether she expected to put her hand up as deputy - a role that is also elected by caucus but usually is the leader's choice.
Her message to whoever came out as leader was to "unite this team. We are going to be great, let's beat Jacinda Ardern".
Louise Upston said she was confident the party would be able to united after.
"I think it's pretty obvious why we need a united team."
Asked if she was disappointed that no deal had been reached, Upston said the meeting was not until 3pm. "We'll see what happens."
Earlier this morning, Simon Bridges told RNZ he was feeling "really good" heading into today's caucus decision.
The party's leadership was catapulted in chaos after then-leader Judith Collins summarily demoted Simon Bridges last week.
Bridges, arriving at Wellington Airport this morning, had a positive attitude despite the ructions of last week and most pundits giving Luxon the edge.
"Really good, I think it's going to be a good day, a good day for the National Party," he said.
"That's because I think we'll draw a line under the past, be able to really take a government focus on what matters to New Zealanders and the solutions that are required and I think win the next election.
"So I feel really good about today."
Finance spokesman Michael Woodhouse told RNZ he was not revealing who he might support.
"We don't talk about what goes on in the caucus room ... we'll just see what the options are ... that'll be for the collective wisdom of the caucus to decide," he said.
