JOIN USSouth Africa face selection issues
Collingwood dislocated a finger during the second Test in Durban but the gritty middle-order batsman has recovered sufficiently to bat in the nets and field.
"Paul was having a net and at this stage he looks fine, he's holding the bat with no discomfort," England captain Andrew Strauss told reporters on Saturday.
"We're very hopeful he'll play, if there are no late incidents. Which we're pretty happy about because he's a very experienced player."
Collingwood is England's leading scorer in the series with 167 runs in three innings.
South Africa are pondering dropping opener Ashwell Prince down the order after he contributed only 63 runs in four innings, and the form of experienced fast bowler Makhaya Ntini.
Ntini, the first black African to play for South Africa, took two wickets in the first innings of the first Test but has struggled since and public opinion has swung against him.
"(Coach) Mickey Arthur has the final call on the XI in consultation with the selectors, but Makhaya is a sensitive issue in South Africa," captain Graeme Smith said.
"He's an icon throughout the country, but also an icon in terms of a player of colour and as a cricketer in terms of performance.
"I hope there's still some confidence left in him, but it's tough to say he's improving when he hasn't taken wickets. England have played him well, but he hasn't been at his best."
Prince looks likely to play having scored 150 against Australia in his previous Test in Cape Town.
"Opening the batting can be tough and the pitch in Durban wasn't easy," Smith said.
"Ash has still got to find his feet opening but he's a strong character and one of the most determined cricketers I've played with. So I back him, and he's an integral part of the senior leadership group."
Strauss warned that England had to contain their euphoria following the crushing innings win in Durban which put them 1-0 up in the four-match series.
"I like the feeling in the dressing room, but just because we won the last Test, it doesn't mean we'll win here," he said.
"We've had plenty of people telling us how great we were, patting us on the back, but it's like when you lose and people tell you you're useless, you mustn't read too much into it.
"In Test cricket, you have to earn the right to get on top of your opposition and we did that well in Durban."
South Africa have a fine record in Cape Town, only losing to Australia at Newlands since their readmission to international cricket in 1991. The last time South Africa lost a home New Year Test was in 1967.
"We feel ready and excited because a New Year's Test at Newlands is always a special five days for us," Smith said.