The doctors said the 89-year-old retired auto worker, recently deported from the United States, can stand trial so long as his time in court does not exceed two 90-minute sessions daily, Munich prosecutors said.
They added that formal charges can be expected this month.
Demjanjuk is accused of being a guard at the Sobibor death camp in Nazi-occupied Poland during World War II. Prosecutors allege that he was an accessory to murder in 29,000 cases.
"We are very pleased that this will pave the way for him to be prosecuted in Germany," said Efraim Zuroff, the top Nazi hunter at the Simon Wiesenthal Center.
"This has been a very complicated case, but it is important that Demjanjuk, who actively participated in the implementation of the Final Solution, finally receive an appropriate punishment," Zuroff said by telephone from Jerusalem.
Demjanjuk has been in custody in Munich since arriving there May 12 after losing a court battle to stay in the United States.
Demjanjuk's health was a key issue in that battle. His son, John Demjanjuk Jr. told The Associated Press in an e-mail that German doctors have determined his father has about 16 months to live, due to his incurable leukemic bone marrow disease.
"With less than (two) years for my father to live, a career-seeking German prosecutor is hastily pressing forward indicative of a 100 percent politically motivated effort to blame Ukrainians and Europeans for the crimes of the Germans," Demjanjuk Jr. wrote.
"This has nothing to do with bringing anyone to justice or fitness for trial. My father will not live to fairly litigate the matter as (he) has successfully done before," he wrote.
Photos taken in April showed Demjanjuk wincing as immigration agents removed him from his home in Seven Hills, Ohio, during an earlier aborted attempt to deport him to Germany.
Images taken days before and released by the U.S. government showed him entering his car unaided.
Demjanjuk says he was a Red Army soldier who spent World War II as a Nazi POW and never hurt anyone.
But Nazi-era documents obtained by U.S. justice authorities and shared with German prosecutors include a photo ID identifying Demjanjuk as a guard at the Sobibor death camp and say he was trained at an SS facility for Nazi guards at Trawniki, also in Poland.
Efforts to prosecute the Ukrainian native began in 1977 and have involved courts and government officials from at least five countries on three continents.
Charges of accessory to murder carry a maximum sentence of up to 15 years in prison in Germany.
By Associated Press Writer Roland Losch