The Magpies went into the third round of fixtures top of Group F, after hammering PSG in their previous European match, but there was to be no repeat of that magic as Eddie Howe's side fell to a rare home defeat.
It was a largely even affair in the opening 45 minutes, with both sides having chances to open the scoring. Nick Pope produced a stunning double save to keep the hosts level, while Anthony Gordon had a big chance for Eddie Howe's side, who lost Alexander Isak early to injury.
It was Dortmund though who went into the break ahead, as Nico Schlotterbeck was found on the left and he perfectly picked out Felix Nmecha, who finished the sharp move with a first-time finish just before half-time.
The visitors were largely untroubled for much of the second period, with the Bundesliga side able to control things and keep Newcastle at arm's length.
Jacob Murphy was forced off with a shoulder injury just a few minutes after coming on, while Sandro Tonali was also introduced for what could be his final appearance this season, amid reports of an imminent ten-month ban for breaches of Italian betting regulations.
The Newcastle pressure did finally materialise in the closing stages. Callum Wilson came close to finding an equaliser with five minutes to go, as his flicked header bounced back off the bar, before Anthony Gordon was also denied by the woodwork with a deflected effort in the final minute of added-time.
The Magpies, who sit third in Group F but only two points off PSG at the top, now face daunting trips to Dortmund and Paris, before welcoming AC Milan to Tyneside in the final group-stage match.