The 22-year-old came through the youth system at Manchester City, but he only made two first-team appearances for the Citizens before moving to Wolfsburg in 2021.
The midfielder featured on 50 occasions for Wolfsburg, scoring three goals and registering seven assists, including three goals and six assists in 32 appearances in all competitions last term.
There has recently been a host of speculation linking the Germany international with a switch to Dortmund, and the German giants have now confirmed his arrival on a contract until June 2028.
"Bundesliga club Borussia Dortmund have signed Germany international Felix Nmecha, 22, from VfL Wolfsburg. The midfielder penned a contract until 30 June 2028 on Monday," read a statement on the BVB website.
Meanwhile, Dortmund's sporting director Sebastian Kehl said: "Felix Nmecha is a fast, technically adept and physically strong player who will enhance our midfield both offensively and defensively with his profile.
He had a sterling education at Manchester City and played his way into the limelight at Wolfsburg last season. We're delighted to have won another Germany international over and are convinced that Felix's development is a long way from over."
Nmecha contributed three goals and six assists in 30 Bundesliga appearances last season and showed his versatility by operating in a number of different midfield roles.
"Borussia Dortmund is a wonderful club that I have followed since my childhood," the midfielder said when addressing his switch to the Black and Yellows.
"I'm delighted that I am a part of it now and that I can help the team achieve its objectives in the Bundesliga, the DFB-Pokal and the Champions League. I hope the fans will give me the chance to get to know me."
Dortmund finished second in the Bundesliga last season, giving up the title on the final weekend of the campaign, with Bayern Munich ultimately winning the division on goal difference.
Edin Terzic's side have now made two signings this summer, with Ramy Bensebaini proving to be their first acquisition of the market on a free transfer from Borussia Monchengladbach.
Jude Bellingham's exit has been the major story in terms of the team's outgoings, with the England international making a big-money move to Real Madrid.