The younger brother of Chelsea star Eden had been speculatively linked with a move to Stamford Bridge or Liverpool but has chosen to remain in Germany.
The 26-year-old Belgium international scored 13 goals and provided assists for 12 more in 35 matches for Moenchengladbach last season.
Hazard told the Borussia Dortmund website: "I am grateful for five great years at Borussia Moenchengladbach and very nice memories.
This was the perfect time to take the next step in my career. I am proud to play for Borussia Dortmund, a top club with incredible fans."
Commenting on the move, Dortmund sporting director Michael Zorc said: "We are delighted that Thorgan has decided to go with Borussia Dortmund.
"in full conviction that he is a seasoned Bundesliga player and Belgian national player, who will help us with his pace and quality of finishing, the proof has been provided."
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