BVB pipped the Bavarian giants to the league crown as well as the DFB-Pokal last term, but coach Jurgen Klopp has refused to target a third consecutive Bundesliga title, preferring to set Champions League qualification as his side's goal.
Subotic, 23, believes this in itself shows the increasing expectations at the Signal Iduna Park and insists that Dortmund do not fear Jupp Heynckes' big-spenders.
"We are not afraid of Bayern, but we respect them," he told Bild.
"We know that it will be the most difficult season for us. It is the first time we have proclaimed the goal of qualifying for the Champions League as our main target."
Wile Dortmund have brought in Marco Reus from Borussia Monchengladbach for €14.5 million, title rivals Bayern have reinforced their squad with a host of new talent including Dante, Xherdan Shaqiri, Claudio Pizarro, Tom Starke, Mitchell Weiser, Lukas Raeder and Mario Mandzukic.
However, Subotic is certain that the title fight will not be a two-horse race as there are other contenders for the Bundesliga crown, including Gladbach, Schalke, Wolfsburg and Werder Bremen.
Subotic, who joined Dortmund in 2008, also believes that his club's signing of German international Marco Reus will lessen the blow of losing star playmaker Shinji Kagawa to Manchester United.
The centre-back has backed Reus to make a big impact, along with fellow attacking midfielder Mario Gotze.
"Shinji has earned his contract with Manchester United through superior performances. But we have an extremely strong team. Marco Reus and Mario Gotze are world class."