The Shrek star - who split from Justin Timberlake in January after a four-year relationship - has been seen getting cosy with Jessica Simpson's ex-boyfriend in New York.
After first being spotted last week strolling hand-in-hand a source tells People magazinethe two were "all over each other" and "super flirty" at the Bowery Hotel at the weekend.
According to People Mayer, 29, and Diaz, 34, who sat together on a couch in the back of the patio, "were laughing and talking a lot" as the waitress brought several rounds of drinks, says the source.
A friend told the mag the couple were dating.
"Yes, it's definitely true" a source close to Mayer said.
Last week Mayer and Diaz were seen strolling along the street hand-in-hand. "They were nuzzling each other and looked besotted." a source said.
The couple then enjoyed an intimate dinner at Lafayette Street restaurant Indochine.
A fellow diner said: "They were very playful and cosy. They drank cocktails and lingered over dessert."
Diaz, 34, is in New York filming new comedy What Happens in Vegas. The pair are believed to have been friends for some time.
A source said: "This was technically not their first meeting. They met years ago and have hung out together with mutual friends before.
"But this was the first time they went out alone. It's new and developing and they really like each other."
Mayer's representative said: "We do not comment on our clients' personal lives."
Diaz' representative also refused to discuss their relationship.
Earlier last week, Mayer, 29, was spotted having lunch with singer-and-actress Mandy Moore, 23.
