The 63-year-old is optimistic about Jurgen Klopp's chances ahead of Tuesday's away game against the Primera Division champions in the Spanish capital
The Bundesliga champions recorded a 2-1 win at home against los Blancos, and the Switzerland boss is confident that that his former side can grab a surprise result at the Bernabeu.
"Dortmund have nothing to lose. You remember games at the Santiago Bernabeu for years to come - it’s the highlight of your career," he was quoted as saying on the official Bundesliga website.
"Borussia showed in Manchester that they can quickly adapt and play on the counter. That’s their speciality and the reason why I think Dortmund have a good chance in Spain - because Madrid's playing style suits them.
"The Dortmund players are hungry to achieve something in the Champions League. For now, the 2-1 win over Real Madrid is the high-point and Dortmund are in a great position in the group. They haven't made it yet, but it's looking good."
Borussia Dortmund sit atop of Group D with seven points from three games.