Bayern, aiming to become European champions for the seventh time, will face a City side whose Spanish coach Pep Guardiola sat on the Bundesliga club's bench from 2013-16 following the draw made in Nyon, Switzerland earlier in the day.
"We watched the draw together with the coaching staff and I think it is a challenging tie but I think it is good because if you end up winning the title ... no one can accuse you of having the luck of the draw," Nagelsmann told a news conference.
"Should there be a Champions League title at the end of the season it would be a great triumph," he said.
Bayern, who came through a group that included Inter Milan and Barcelona, eliminated star-studded Paris St Germain with a 3-0 aggregate win over two legs in the Round of 16 with PSG's leading striker Kylian Mbappe shut out.
The winners of Bayern's quarter-final will face either Real Madrid or Chelsea in the semi-finals.
"You have to eliminate these teams if you want to win," Nagelsmann added. "It was PSG, then it would be Manchester City then maybe Real or Chelsea and then in the final either a Portuguese or Italian team.
"It would be a triumph which would have a high value, one of great mentality and quality."
AC Milan face Napoli and Inter take on Benfica in the other two quarter-finals.
"I take a lot of energy and joy. It is challenging but we will prepare for it. We want to advance even further so we have to win the game against City," Nagelsmann said.