The 18-year-old, who made his senior debut at Rennes in October last year, has agreed a deal until 2021 with the Bundesliga outfit.
It is believed that a host of clubs, including Tottenham Hotspur, Arsenal and Chelsea, had their eyes on Dembele, but the teen has opted to move to Germany this summer.
"Dortmund showed a lot of interest in me right from an early stage and they have always kept close contact with me - this really impressed me," Dembele told the club's official website.
"I am totally convinced of the Borussia sporting concept. I can hardly wait to play in the Bundesliga in front of more than 80,000 spectators in the Signal Iduna Park and to walk onto the pitch in the Champions League with my new teammates."
The club's sporting director Michael Zorc added: "Ousmane can play nearly every position in attack. He is strong one-on-one, he can play with both feet, he is good at nutmegging and dribbling, and he is fast and dangerous in front of goal.
"I have nothing but respect when I see how many high profile offers from all over Europe Ousmane has turned back and how he has stood firm about his commitment to Dortmund over such a long period of time."
Dembele has scored 12 goals in 25 appearances this season.