The right-back has signed a contract with the Bundesliga side until 2022, with Felix Passlack heading in the opposite direction on loan for two years as part of the deal.
Bild reports that Dortmund will pay a €5 million fee for the 23-year-old, who claimed a silver medal with Germany at the Olympics in 2016, while he also won the 2017 Under-21 European Championship.
Sporting director Michael Zorc told the club's official website: "Jeremy can play both on the right and on the left. He was one of the starters in the Germany U21 national team at the European Championship this summer.
"He is a player with great development potential."
Dortmund currently sit top of the Bundesliga table on goal difference after two games as they look to improve on their third-placed finish from the 2016-17 campaign.
Toljan becomes the club's sixth signing of the summer window, with Andrey Yarmolenko, Maximilian Philipp, Mahmoud Dahoud, Omer Toprak and Dan-Axel Zagadou having also joined Peter Bosz's side.