The Two and a Half Men star, who has been dating his girlfriend since spring 2012, is said to have popped the question on Mila's birthday back in August.
"It happened over the summer," an insider told In Touch Weekly.
"Ashton's whole family had come out to California for Mila's birthday [on Aug. 14], and he did it then. They couldn't go public with [the engagement] until his divorce was final. Now nothing should be standing in their way."
Ashton, 35, split from Demi Moore, 51, after six years of marriage. Their divorce was officially finalised last week, two years after the couple had announced their separation. It is thought that the paperwork was delayed by disagreements about finances.
Since the divorce was settled, Mila has been pictured wearing a ring on her engagement finger, fuelling rumours that the loved-up couple are set to tie the knot.
A fan who bumped into Ashton and Mila in a yoghurt shop in Los Angeles told E! News that the 30-year-old actress was definitely sporting a ring on her finger.
"She was wearing a small ring on her left hand," said the source. "It was petite, but still noticeable and pretty.
"Mila looked really gorgeous and happy. They came into the store hand-in-hand and smiling. They looked like a cute couple."
Speculation of the couple's engagement first started in September when the Black Swan actress was spotted wearing a simple gold band.
Ashton and Mila first met on the set of That 70's Show, where they played on-screen couple Jackie and Kelso for eight years. While Ashton went on to marry Demi, Mila dated child star Macaulay Culkin from 2002 to 2010.