The news broke after Pippa was photographed wearing a large diamond engagement ring earlier this morning.
In a statement, Miss Middleton - the younger sister of the Duchess of Cambridge - and Mr Matthews said they are planning to marry next year.
And the newly-engaged couple confirmed the happy news to the Associated Press, revealing they will tie the knot in 2017.
The brunette looked delighted when she stepped out of her house showing off her incredible new ring.
Pippa Middleton on Centre Court at the Wimbledon Tennis Championships in London, July 12, 2015.
The bride-to-be got a ton of attention during Kate's wedding to Prince William in 2011, when she attended the event in a booty-hugging white gown.
Back then, Pippa nearly stole the show with her white, figure-hugging dress-but at her own wedding she will have to compete with her royal sister and adorable nephew Prince George and niece Princess Charlotte for attention! The couple has been dating on and off since 2012, and rekindled their relationship in January after Middleton split from her ex, Nico Jackson, last October. Carole in particular is very approving.
She was reportedly "totally surprised" by the proposal.
Hedge fund manager James is said to have asked 32-year-old Pippa to be his wife after going down the traditional route and asking her father, Michael Middleton, for permission.
Pippa Middleton caught the world's attention when she played bridesmaid at the royal wedding of her sister Kate and Prince William, the Duchess and Duke of Cambridge.
Matthews is the older brother of British reality star Spencer Matthews, who appears on the hit show "Made In Chelsea".