Nicknamed "the faceless preacher" for showing his back to the camera in propaganda videos, the 33-year-old Iraqi was arrested last November on suspicion of being the "central figure" in an IS recruitment ring.
Walaa - named by the authorities as Ahmad Abdulaziz Abdullah A. - will appear before a court in the northern German city of Celle alongside four co-defendants accused of supporting IS.
The five created a "pan-regional Salafist-jihadist network" in which Walaa "took on the leading role as the representative of the so-called Islamic State in Germany," prosecutors said in their indictment.
"The goal of the network was to send people to IS in Syria or Iraq."
The closely-watched terror trial will take place under heavy security and is expected to run until early 2018.
"For a long time little has been known about the backroom men, those who seduce and incite to jihad," Der Spiegel news weekly wrote.
"The proceedings against Abu Walaa promise to give deep insights into these mechanisms, which makes this one of the most interesting Islamist trials in recent years."
If found guilty, the accused face up to 10 years in prison, according to DPA news agency.
A shadowy figure who long evaded capture, Walaa has been linked to some of Germany's most high profile jihadist attacks since arriving in the country in 2001.
After setting up his base in Hildesheim, a northern town seen as a hotbed of Islamic radicalism, he made a name for himself delivering extremist sermons at the notorious DIK mosque, which has since been shut down.
Walaa, who has two wives and several children, also gave seminars across the country calling for jihad. He notably spoke at a Berlin mosque frequented by Anis Amri, who drove a truck through a crowded Christmas market last December, killing 12 people.
German intelligence services took pictures of Amri in Hildesheim some 10 months earlier, prompting speculation he had ties to the network. Amri was shot dead by police in Italy days after his rampage.
Walaa's four accomplices - a Turkish national, a German, a German-Serbian and a Cameroonian, aged between 27 and 51 - are likewise accused of indoctrinating young men with jihadist ideology.
German media reported that among their "students" was at least one of the three teenage boys who last year set off a home-made bomb at an Indian wedding, badly wounding a Sikh priest.
Much of the prosecution's case rests on evidence collected by an unidentified informant who infiltrated the network for months.
But the key witness is not expected to testify at the trial after Walaa urged his followers to kill the mole.
Walaa and his co-accused have not been charged with planning any attacks in Germany.
But according to the indictment, they provided logistical and financial support to smuggle at least eight fighters into IS-held territory.
Among them were German twins Mark and Kevin K., who blew themselves up in separate suicide blasts targeting Iraqi security forces. Together, they killed more than 150 soldiers.
Another recruit was Anil O. who joined IS in Syria but fled after becoming disgusted with the terror group's tactics.
He returned to Germany, where he was arrested in September 2016.
According to Spiegel, he turned on Walaa and provided crucial information in return for a reduced sentence.
Walaa's lawyer Peter Krieger has dismissed the former fighter's testimony as "lies".
Germany's security services estimate there are around 10,300 radical Islamists in the country, compared to some 3,800 in 2011.
About 700 of them are considered dangerous and capable of a violent attack.