The Germany Under-21 international had been linked with a switch to the Premier League, but he has now committed his future to the Black and Yellows.
He told the club's official website: "BVB is one of the biggest clubs in the world. It is an honour for me to be able to play here. I think that at the age of 23 years old I am mature and old enough take this step. I want to develop as a player in Dortmund.
"I am now looking forward to playing for these fans and having their full support behind me."
Philipp scored nine goals in 27 appearances during the recent campaign.