The Bayern ace says Gundogan is comparable to some of Spain's top stars.
Gundogan has been likened to Iniesta and Xavi
The German international became Pep Guardiola's first signing at the Etihad back in June at a fee of around £20 million.
Having signed a four-year deal with the club, Gundogan is widely expected to play a prominent role in City's bid for the the Premier League title this season.
The 25-year-old will himself be hoping to make a big impression, having spent a substantial period on the sidelines during the 2015/16 season due to injury, causing him to miss out on Germany's Euro 2016 campaign.
And he has been backed to shine by Martinez, who claims the former Dortmund playmaker is one of the best in the business and is among a clutch of exciting German talents.
Commenting on Germany's latest talents, he told Goal.com: "I think Germany have a lot of good players. The most similar player to Xavi and Iniesta is Gundogan, but he has been injured. Germany also have many good young players; Joshua Kimmich, who had an amazing Euros, or Leroy Sane. So the problem [Germany losing the semi-final at Euro 2016] is not about the players, it can be as simple as sometimes you win, sometimes you don't.
"The most important thing is that you are convinced with the way you play. If you play counter-attacking football you have to be convinced. It's the same with possession. The German players all know what they have to do and they are convinced of this style."
The Spaniard is currently away with the rest of the Bayern squad on the Audi Summer Tour, with the Bundesliga champions set to face AC Milan in the International Champions Cup.
Meanwhile, Gundogan looks set to miss out on City's first game of the season with Sunderland on August 13th.