The Real Madrid coach is confident his side can get a good result against the German champions, despite suffering defeat to them on matchday three
Jurgen Klopp's men continued Los Blancos' awful record in Germany by beating them 2-1 last time around and the Portuguese coach is convinced that they have enough talent at their disposal to mount a real challenge.
"They [Dortmund] are an excellent team," Mourinho told reporters.
"It is no coincidence that they have won two league titles in Germany or that they are leading the group.
"They are good with strong, technical and very direct players. For me, if this team gets to the second round, which they are well positioned to do, they will be a candidate to win the competition."
Robert Lewandowski and Marcel Schmelzer's strikes on matchday three, either side of a stunning Cristiano Ronaldo equaliser, left Madrid a point adrift of the German champions at the top of Group D.
But Mourinho is confident, though, that his team can put in an improved performance when the two sides meet again on Tuesday.
"It's a very hard group, [so] to get anywhere is good," the 49-year-old continued.
"Losing is bad and I think all the teams are at risk. Dortmund and us are better off than the other two teams. But City may win more points in the second half of the group stage [fixtures] and rise [up the table].
"It is very entertaining because it is very complicated and all the teams are under pressure. Borussia are strong, but we are at home and we can do well."
Mourinho also confirmed that Karim Benzema will not be fit to play in the match due to an abductor muscle problem.
"Benzema is injured and [Raphael] Varane will start. I do not know how long [Benzema will take to recover] but he is out for tomorrow.
The two-time Champions League winning coach then went on to praise star striker Cristiano Ronaldo.
He added: "I think Cristiano was already a great player before coming to Real Madrid and gaining [worldwide] publicity. Now he is 27 years old.
"He was a good player, a great player, and will [continue to] be in the coming seasons."