The Trotters centre-back has enhanced his reputation with a string of excellent performances over the past 12 months.
He was rewarded with a call-up to the England squad last week when Rio Ferdinand was forced out with an injury.
Megson admits he was delighted to see his player gain international recognition and is now looking to secure him to an extended contract.
Manchester City and Arsenal have both been linked with Cahill but Megson hopes he will remain at the Reebok Stadium for a long time to come as he regards him as a vital member of the Bolton squad.
"Gary is currently under contract and we are currently in the process of negotiating a new and improved deal for him," the Trotters boss said in the Daily Star Sunday.
"He has fully deserved his England call-up and we want him to earn many caps in the future as a Bolton Wanderers player.
"I want to build the team around him for the next few seasons.
"And that means we very much want him to stay with us here."