PayPal integration in Android Pay has been a long time coming. We first spotted it in a teardown back in January, and an official announcement came last month. Now the feature appears to be going live, at least for some users.
In addition to the below splash screen that some users are seeing, the page for supported banks and cards has been updated to include PayPal. The page says that any banks or cards that PayPal supports will work with Android Pay, so if your bank/card provider has been slow to adopt Android Pay, this can be a workaround.
I don't have the option on my phone yet, but let us know in the comments if you see it. Keep in mind that this is US-only, at least for now.