Deportations of convicted criminal migrants will also be sped up while police resources are to be greatly boosted under the security package drawn up by Interior Minister Thomas de Maiziere.
"Germans who participate in fighting abroad for a terror militia and who have another citizenship should lose their German nationality," de Maiziere said.
Around 820 people have left Germany to fight alongside jihadist groups in Syria and Iraq, according to estimates by German secret services.
The security package must still be approved by the country's right-left coalition as well as in the German parliament, and the issue of taking away German citizenship could be disputed, with Green lawmaker Volker Beck swiftly condemning it as "desperate activism".
De Maiziere himself also acknowledged that it "would be a difficult point" with the government's junior coalition partner, the Social Democrats (SPD).
But making his case, he pointed to German legislation which already allows for citizens with dual nationalities and who fight for a foreign army to be stripped of their German citizenship.
SPD chief Sigmar Gabriel signalled that his party is "ready for discussions on anything that can contribute to reinforcing security", but added that "we are not available for any populist quick fix".
In the wake of the November 13 Paris attacks, French President Francois Hollande had proposed stripping convicted terrorists of their French nationality.
But the suggestion had to be dropped after a fierce debate, as critics warned it would create stateless individuals.
Germany's toughened stance comes after two attacks in July by migrants in the southern state of Bavaria -- an axe rampage on a train in Wuerzburg and a suicide bombing in Ansbach.
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