Germany come into the match not having lost a game in 90 minutes since November 2023, including a 2-1 win over the Dutch in Frankfurt in March.
Despite a dominant 5-0 win over Hungary in Duesseldorf on Saturday, Nagelsmann said the Netherlands posed a greater threat.
"The Dutch side is better equipped than Hungary," Nagelsmann said, adding he expected a "great atmosphere with everything in orange" at Johan Cruyff Arena on Tuesday.
The Dutch, who were eliminated by England in the semi-finals at Euro 2024, are among Germany's greatest footballing rivals.
Underdogs Germany beat the Netherlands in the 1974 World Cup final. At Euro 1988, the Dutch defeated West Germany on home soil in the semi-finals on the way to winning the tournament.
Nagelsmann said games between the nations were "always nice duels" adding: "It's always impressive how many good players they can pull out of the hat."
Germany's dominant win over Hungary was driven by outstanding performances from 21-year-old forwards Jamal Musiala and Florian Wirtz.
Speaking earlier on Monday, Netherlands coach Ronald Koeman admitted he was "jealous" of Germany's star duo, saying "Musiala and Wirtz are incredible players".
Nagelsmann said the young attackers had "taken huge steps" and praised them as "0.0 per cent selfish, Flo (Wirtz) in particular is sometimes too unselfish.
"Both are extremely hard-working, and that hasn't diminished at all. I don't have the feeling that either of them could lose touch with reality. They're down-to-earth."
The match was Germany's first since the retirements of team stalwarts Manuel Neuer, Thomas Muller, Toni Kroos and Ilkay Gundogan, but the young duo's performance eased concerns that Nagelsmann's new-look side may struggle to adjust.
Germany's Robert Andrich, who played alongside Kroos in midfield, said it was "not a big change for me" to suit up next to Borussia Dortmund creator Pascal Gross.
Andrich made his Germany debut less than a year ago in November 2023 but has since played in each of his country's 11 games, starting nine times.
He told reporters: "Of course, you wouldn't have guessed one or two years ago that I'd be playing for Germany - or that I'd play so many games."
Nagelsmann also revealed striker Niclas Fullkrug was in doubt for Tuesday's match with a calf injury, with a decision to be made on matchday.
Fullkrug, who moved from Borussia Dortmund to West Ham in the summer, scored in the win over Hungary and now has 14 goals in 22 games for Germany.
