The X Factor USA judge and One Direction singer have been sharing video chats over Skype, and went for a meal after the Los Angeles MTV VMA awards, according to The Mirror.
An insider told the newspaper that Lovato has admitted she and Horan are together.
"Demi's told the guys backstage she and Niall are loosely dating - it's casual but they are definitely dating, albeit long-distance," they said.
Lovato has also spoken out about Horan, saying that the pair like each other but don't want a phone relationship.
Lovato explained: "He has a lot of great qualities. He is an amazing listener and makes me laugh a lot, two of the main qualities I look for.
"He knows I have a little crush on him, and we enjoy having dinner when we get the chance. We speak and message all the time.
"I don't want a relationship over Skype; we are both in a place where we feel zero pressure to rush. We share the philosophy that the right one is worth waiting for."
Lovato, who entered rehab in 2010 over eating disorder and mental health issues, added that she has been focussing on her X Factor role and "wellbeing".
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