New regulations will allow Berlin more time to probe takeover bids, especially in sectors affecting critical infrastructure, and extend the range of deals eligible for examination by the authorities.
"We remain one of the most open economies in the world, but we also have an eye on fair competition. We owe that to our companies," Economy Minister Brigitte Zypries said in a statement.
"In the future, reporting requirements and more time to examine deals will provide more protection and reciprocity for companies in critical infrastructure."
The new rules extend takeover probes to include companies providing services or software to strategic sectors including electricity grids, nuclear power plants, water supplies, telecoms networks, hospitals and airports.
“We know that there is critical infrastructure that is attractive to investors,” Economy Ministry State Secretary Matthias Machnig told the Süddeutsche Zeitung.
“We are indeed an open political economy, but we are not naive.”
More defence companies manufacturing or developing "key technologies" are also covered than under previous rules.
It doubles the time civil servants have to probe proposed deals by non-European Union or European Free Trade Association (EFTA) buyers from two to four months.
And it makes clear that "indirect" takeovers - where a non-EU firm creates a company within European borders as a vehicle for a buyout - will also be subject to examination.
In its statement, the Economy Ministry said Germany would work also with France and Italy to push for similar changes to EU law.
In February, German, French and Italian economy ministers warned the EU Commission about a “possible sell-off of European expertise”.
The German government's efforts to protect its industries comes just days after members of the G20 summit in Hamburg on Saturday reached a compromise to "fight protectionism", while allowing countries to use "legitimate trade defence instruments" to protect their markets.
This was seen by some to be a concession to US President Donald Trump, who has been critical of international free trade agreements under a motto of “America first”.