Bidding for the accolade is open to large towns - making the Bedfordshire authority eligible.
City of Culture status is designed to raise the profile of an area's arts and creativity, attract business investment - and boost tourism.
Two months in, it has already significantly raised the profile of Hull, the current 2017 host.
Luton is facing competition in 2025 from Tees Valley in the North East, which has confirmed its bid.
The UK City of Culture scheme was launched by the government in 2009, following the success of Liverpool's European City of Culture status in 2008. It is awarded every four years.
The first UK holder was Derry-Londonderry in 2013, with the city hosting the Turner Prize and Radio 1's Big Weekend.
Borough council leader Hazel Simmons said: "We are confident that as we build on the work of the initiatives already begun, we will be able to present a credible, attractive bid to become the UK's city of culture in 2025.
"This will help us mark 150 years since our incorporation as a municipal borough."
Marie Kirbyshaw, chief executive of Luton Culture, said: "Luton is an extraordinary place which has distinction and diversity that we should be celebrating.
"City of Culture would be a fantastic opportunity for us to work together, be proud and be ambitious."
A report to the council's overview and scrutiny board says the bid aims to make "Luton a flagship UK place of culture" by "building on the strength of the cultural scene".
The town - which has a population of 240,000 - lost a Â£200,000 bid for city status in 2012.
Councillors will discuss the next stage of the Luton bid on 6 March.
The final 2025 bidding process is not expected to take place until 2020.
Luton is preparing to launch a "credible and attractive bid" to become the UK City of Culture in 2025.