The Basque club announced the deal on Tuesday, confirming Terzic has signed a contract through June 2028. He will succeed club legend Ernesto Valverde, who announced in March that he would step down at the end of the season after four years in charge.
A formal presentation will take place once the La Liga campaign concludes, with Athletic Club still to play four matches this season while chasing a European qualification spot from ninth place.
Terzic, 43, was born in Menden, Germany, to a family with Bosnian and Croatian roots. He spent the majority of his managerial career at Dortmund across two spells, winning the DFB-Pokal in 2021, finishing runners-up in the Bundesliga in 2023 and reaching the Champions League final in 2024, where Dortmund lost to Real Madrid at Wembley. He left the club by mutual consent shortly after that final.
His overseas coaching experience predates his time at Dortmund. Between 2013 and 2017 he served as assistant coach to Slaven Bilić at Beşiktaş and West Ham United, giving him familiarity with different football cultures. Athletic Bilbao will be his first head coach role outside Germany.
Andoni Iraola, the Bournemouth manager and a former Athletic Bilbao player, had been strongly linked with the job. Chelsea were also credited with an interest in Terzic before the Bilbao deal was agreed.
Terzic will become the first foreign head coach at San Mamés since Toto Berizzo's short-lived spell in 2018, and only the second since Marcelo Bielsa's iconic tenure earlier that decade.