The two federal governments, plus the local government of the German state of North Rhine-Westphalia, want to investigate business cases for the production of hydrogen using renewable electricity and study the integration of hydrogen into industry and transport.
A report will be published later this year discussing the findings.
"To ensure the long-term success of the energy transition, we need CO2 -free energy sources," said German energy minister Peter Altmaier.
"The development of the necessary technologies opens up enormous industrial policy potential and can help create new jobs," he added.
According to German news magazine Der Spiegel, Altmaier wants 20% of the hydrogen consumed in Germany to be sourced from renewable electricity by 2030.
Under Altmaier's draft national hydrogen strategy, there could be as much as 3-5GW of electrolysis capacity in Germany by the end of the decade, Der Spiegel reported.
The Dutch minister for economic affairs and climate policy, Eric Wiebes, explained the addition of offshore wind off the Netherlands and northern Germany could support the growth of the hydrogen industry in the region.
"The Netherlands-North Rhine-Westphalia region can become an important pioneer in the development of a green hydrogen economy," said Wiebes.
North Rhine-Westphalia is an inland state in the west of Germany once known for its mining sector. It has a strong mechanical engineering sector and is home to the RWTH Aachen technical university.