After beating Ajax in their opening Champions League match, the former BVB striker believes they can spring a surprise and reach the knockout stages
The 47-year-old, who scored twice in Dortmund's 1997 European Cup Final victory over Juventus, feels the German champions can recover from last season's first round exit and advance to the last 16.
Robert Lewandowski's late goal secured all three points at the Westfalenstadion and Riedle now thinks his former side can build on that victory.
"I think the match was really good. Ajax weren't easy opponents and it was a close match," he explained.
"Dortmund didn't show enough potency during the first half but overall it was a great performance that they can build upon."
With Real Madrid and Manchester City the other two sides in Group D, many have already written off Jurgen Klopp's side, but ex-Germany international Riedle is of the belief that Dortmund can spring a shock and qualify for the next round.
"Real and Manchester City have outstanding teams. If Dortmund put in their best performance, they have a chance against these teams."
As the reigning Bundesliga winners, much is expected of Klopp and his team this year, and Riedle believes that they can again challenge big-spending Bayern Munich despite the loss of one of their star players.
"They lost an important player in Shinji Kagawa, but they found in Marco Reus an adequate replacement, who has plenty of potential.
"I think Dortmund are no worse off, and they have gained experience. The innocence of recent years has been lost and they have matured."