A source told The Canadian Press the two have verbally agreed to fight on the Sept. 27 card in Las Vegas.
Cote (21-8) and Thompson (9-1) have both won three straight in the Octagon.
Cote, 34, is coming off a unanimous decision win over Australian Kyle Noke in the TUF Nations finale in April in Quebec City. The two served as rival coaches on the Canada versus Australia reality TV show.
Thompson, 31, defeated Robert Whittaker by first-round TKO at UFC 170 in February. The former kickboxing champion has worked with former welterweight title-holder Georges St-Pierre and recently helped middleweight champion Chris Weidman prepare for his UFC 175 win over Lyoto (The Dragon) Machida.
UFC 178 was originally slated for Toronto but was recently switched to Las Vegas.
Light-heavyweight champion Jon (Bones) Jones meets Alexander (The Mauler) Gustafsson in the main event. Jones won a narrow decision over Gustafsson, ranked No. 1 among 205-pound contenders, when the two first met at UFC 165 in Toronto last September.