The actor, who played the popular supermarket assistant for 20 years until 2003, has met with new Corrie boss Stuart Blackburn to discuss a potential comeback, the Sunday Mirror reports.
"Curly is an absolute Street legend. He was involved in some brilliant storylines. There have been murmurings that he may be in line for a comeback for years, but now it looks like the time has come," a source said.
"He recently had a dinner meeting with Stuart Blackburn and it was extremely positive. Stuart has a real sense of the history of Corrie and has a great deal of affection for some of the older characters.
"Curly Watts certainly fits into that bracket. They sat down and discussed old storylines and all the new directions they could take the character.
"Stuart will now speak to the rest of the production crew and when they have their next forward planning meeting they will work out potential plots. If that all goes well they will get him back in and start filming."
Kennedy previously admitted that it was "no secret" he wanted to return to Coronation Street. Get the Inside Soap magazine on your iPhone or iPad