The winger made 24 appearances across all competitions with Victory this past season, scoring one goal and providing one assist.
Theoharous became a key member of Muscat's side, scoring his maiden A-league goal in his side's 5-2 win over Central Coast Mariners in round 23, before an ankle injury ruled him out of Victory's grand final win over Newcastle Jets.
He joins the likes of fellow young stars who have recently departed the club, including Sebastian Pasquali, who moved to Ajax in 2016 and right-back Jason Geria who moved to Japan mid-season.
Monchengladbach have had a number of Australian players on their books, with Mathew Leckie, Craig Moore and Damian Mori having all player for them, while Theoharous will team up with another former A-League flyer in Kwame Yeboah, who signed with them in 2014.
Monchengladbach finished in ninth position this season.