Goal have reported that the two parties have struck a deal at €26 million.
The report goes onto state that personal terms are close to being agreed after Gundogan’s agent was pictured meeting City sporting director Txiki Begiristain back in March.
City have been involved in negotiations with Dortmund and haggle over the price but have settled on a €26m which can be increased with performance related add-ons.
Gundogan has been ruled out of Euro 2016 and the beginning of next season after dislocating his knee during training earlier this month. The German newspaper Bild report that it will take Gundogan four to six months for him to make a full recovery.
The Injury put his proposed move to the Premier League in doubt and caused Dortmund to postpone contract negotiations.
Gundogan has seven assists and three goals in 40 appearances for Dortmund this season.