The former midfielder, who also had brief stints at Liverpool and Real Madrid, leaves his post as manager of Turkish Super Lig side Antalyaspor to work alongside the hugely under-pressure Edin Terzic.
Dortmund announced the news in a club statement, with Sahin to be joined by former teammate Sven Bender, who was working as an assistant at the Germany U17 side.
The pair will join the squad on January 3 for their training camp in Marbella before the Bundesliga resumes on January 12. Both have signed until 2025.
Terzic is under big pressure despite leading Dortmund to the top of their Champions League Group of Death, with their domestic form of huge concern.
BVB are winless in six, a run which includes a DFB Pokal exit to Stuttgart, which prompted a crisis meeting between management according to multiple reports.
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Since then they've dropped out of the Bundesliga title race, and their chances of a top four finish look increasingly in danger.
A draw at home against Mainz in their final game of 2023 prompted another crisis meeting between CEO Hans-Joachim Watzke and sporting director Sebastian Kehl, with Terzic again surviving.
That could be short-lived, though, with the Turkish outlet that first broke the story, Sports Digitale, claiming Sahin will replace Terzic as head coach in the summer.
Sahin, 35, retired from football in 2021 while at Antalyaspor to become the side's manager, and guided them to seventh and 13th in the league despite one of the division's lowest budgets, and he leaves with the team in eighth this season.
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A Bundesliga winner under Jurgen Klopp in 2011, Sahin was named the division's player of the season for his exceptional performances, earning him an ill-fated transfer to Real Madrid.
Later discussing that decision, the midfielder explained he was split between staying and going, before sitting down with Klopp who simply told him 'follow your heart' which made his mind up.
After just ten appearances for Madrid, Sahin was loaned to Liverpool for the 2012/13 season, but only featured in two more matches for the Reds before returning to BVB.
Speaking about his return to Germany, Sahin told the club's website: "It was not an easy decision to leave the position of head of football at Antalyaspor after more than two years as we have built something special.
"I would like to thank everyone involved from the bottom of my heart, especially my players. It was an incredibly intense, educational and emotional time. I wish the club all the best and am convinced that the success story can be continued.
"If BVB asks, I can't say no. As a coaching team, we will try together to get the team back on the road to success. It feels very nice to come home."