The Premier League champions will host their Bundesliga counterparts at the Etihad Stadium in their second Group D fixture on Wednesday.
"You can't win the Bundesliga without being a strong team and Dortmund have won the last two," said the Italian. "They have young players and a fantastic manager (Jurgen Klopp), so it's going to be a great game.
"They've been beating Bayern for the past two years and that's why I think they're one of best teams in Europe.
"With attacking players like [Marco] Reus, Robert [Lewandowski] and [Mario] Gotze, we'll need to do a very good job, restrict their space and avoid making life hard for ourselves."
City lost their opening game in the group 3-2 at Real Madrid last month.