The UFC is close to finalizing the lightweight bout between Penn and Guida for its May pay-per-view event, which is scheduled to take place in Rio de Janeiro.
MMAFighting.com first reported the matchup.
Penn (16-13-2) is riding a six-fight skid. He suffered a first-round submission loss to Ryan Hall in his most recent bout, at UFC 232 in December.
Immediately after Penn lost to Hall, UFC president Dana White admitted he would "love to see" Penn retire. The former lightweight and welterweight champion will continue to fight, however, extending a professional career that began in 2001.
Penn, 40, was temporarily retired from 2014-2017.
The UFC has not yet announced its main event for UFC 237.