"Everyone thinks it's wild but are so happy for them," a source told the magazine, referring to the fact that the pair have only been dating for seven months. "Benji always tends to fall in love easily, but this time it's for real and he landed a great girl. They obviously both make each other incredibly happy and there's nothing better than that."
Us Weekly reports that "multiple sources" have confirmed the engagement news.
Diaz and Madden began dating after Nicole Richie, the wife of Madden's brother and Good Charlotte bandmate, Joel Madden, introduced them.
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Although neither has addressed the rumors, Diaz appears to have been wearing the ring for the past few months.
In September, a friend of the purported groom-to-be told Us that marriage is important to the rocker.
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"He is more traditional then her. She really doesn't care about getting married but wants babies. He wants to get engaged and married first," said the friend.
In the January issue of Cosmopolitan, Diaz acknowledged that love is all about timing, though she did not mention Madden explicitly.
"Timing is everything," she told the magazine. "If you get into a relationship where you want something the guy doesn't want, it's never gonna work. You're never going to get him to be in that place. No matter how old you are, finding the guy who's in the same place as you are and wants to show up is the only way a relationship works, period."