The Spain international joined the Bavarians in 2013 but struggled at first to secure first-team football.
A number of injuries plagued him but the former Barcelona man has kicked on this season.
He has scored six goals so far and his form has helped the club progress in the Champions League and move clear at the top of the Bundesliga.
After watching him in recent months, Matthaus insists he can be compared to former Argentina great Maradona.
"Thiago reminds me of Maradona in the way he moves and twists his body. He has become the heart of Bayern's game this season," he told Bild.
"He is a classic number 10 with an amazing technique, he always keeps his calm and has a perfect sense of position.
"It is easy to see he is the son of former Brazil international Mazinho. He is a player who really enjoys the game and possesses skills few others have.
"In hindsight, Barcelona were unlucky to have Xavi and Andres Iniesta, who kept Thiago out of the team. That is the only reason Bayern were able to sign him.
"Pep Guardiola was a bit unlucky that Thiago was never really 100 per cent fit during his time at the club. Carlo Ancelotti can build on him in the decisive stages of the season. He is indispensable for Bayern."