He made his 84th and final appearances for Columbus in last month's 2-2 draw with New York City FC and is now heading back to Germany with Dusseldorf, having previously played 14 times for Freiburg's reserve team at the start of his career.
"I'm really looking forward to returning to Germany and becoming part of such a traditional club," he told his new side's official website.
The 2018 US Soccer Male Player of the Year was first-choice keeper for the United States at the Gold Cup, which ultimately ended in disappointment with a 1-0 defeat to Mexico in Sunday's final.
Confirmation of Steffen's departure came on the same day that City loaned fellow goalkeeper Aro Muric to Championship side Nottingham Forest.
Muric will also spend the whole of next season away from the Etihad Stadium, but he signed a renewal before departing that keeps him under contract until 2024.
"Extending my current deal with City by a further three years is incredible and an honour for me," he told City's official website.
"I really enjoyed the 2018-19 season and to be involved in our successful EFL Cup run was an amazing experience.
"The players and supporters have made me feel so happy and part of everything and the club have showed their belief in me with this deal."