The Fall Out Boy frontman is rumoured to have proposed after his Live Earth performance in New Jersey on July 7 and Ashlee immediately said "Yes".
A source is quoted as saying: "Ashlee wasn't expecting it at all, it was a total surprise. Pete whipped out a big engagement ring, dropped down on one knee, and asked Ashlee to be his bride. Ashlee said yes right away."
The couple are reportedly keeping their happy news quiet because Ashlee, 22, fears the intrusive media attention which dogged her elder sister Jessica's failed marriage to Nick Lachey.
An insider added: "Ashlee and Pete are desperate to keep the engagement quiet for as long as they can so they can make wedding plans in peace. She definitely doesn't want a big circus wedding like Jessica had when she married Nick. All she wants is a simple ceremony with her family, his family, and a handful of people."
However, Ashlee's representative has rubbished engagement rumors saying they are "absolutely not true".