Palmer is currently in his second season with the franchise after being acquired from the Oakland Raiders back in April 2013.
"I won't get into specific points of the negotiations but we've had some dialogue with Dave Dunn. [Palmer] has done a great job for us," general manager Steve Keim said, the Arizona Republic reports.
The 34-year-old missed three games earlier this season with a nerve issue in his shoulder, but he returned on Sunday after making a recovery.
Palmer has completed 63.4% of his passes with 28 touchdowns and 22 interceptions in his 18 starts with the team and he has led the Cardinals to a 12-6 record in that time.