The McLennan County grand jury heard evidence for about 90 minutes before handing up an indictment against Dotson, who has been jailed in his home state of Maryland since his July 21 arrest.
Dennehy had been missing about six weeks when his decomposed body was found July 25 in a grassy field four miles from the Baylor campus. Investigators had been searching for the 21-year-old at nearby site police say Dotson provided to them after his arrest.
Dennehy had been shot twice in the head.
Dennehy's father last week alleged in a lawsuit that his son received "violent threats" because he was trying to expose wrongdoing in the school's athletic program.
Friends of Dennehy have said he told them both he and Dotson had been threatened, and that the pair obtained guns. Dennehy's family also said he told coaches he feared for his life.
Dotson, in a jailhouse interview last month with The Dallas Morning News, suggested that Dennehy was killed in self-defense and said he had been hearing voices.
"If someone points a gun at you and shoots and it doesn't go off, what would you do?" he asked. "If someone is pointing a gun at you and they start putting more bullets into the gun, what would you do?"
Asked what he did, Dotson only laughed and did not answer, the newspaper reported.
Dotson told FBI agents that he shot Dennehy after the player tried to shoot him, according to the arrest warrant affidavit. A preliminary autopsy report released Wednesday said Dennehy was killed by gunshot wounds to the head, and listed homicide as the cause of death.
After his arrest, Dotson told The Associated Press that he "didn't confess to anything." Since then, Dotson has not responded to a request from the AP for an interview.
Dotson told the News that his life has been threatened and that he has been hearing voices that say, "We are many. We are strong. We are behind you. We support you. We are ready for war ... a spiritual war." He also confirmed that Baylor paid for him to see a Waco therapist because of his increasingly erratic behavior.
Dotson transferred to Baylor last year from Paris Junior College in East Texas. Dennehy, because of NCAA eligibility rules, had to sit out a year after transferring from New Mexico, where he was kicked off the team for losing his temper.
The suit filed by Patrick Dennehy Sr. seeks unspecified damages and names Baylor University, former coach Dave Bliss, school president Robert Sloan, former athletic director Tom Stanton and others associated with the program.
According to the lawsuit, after getting no response over his concerns about improprieties within the school's basketball program, Dennehy Jr. decided it was his responsibility to expose "illegal activities within the athletic department."
"Shortly after making that decision, Patrick became the target of violent threats against his person and soon became fearful for his life," the lawsuit states. It said school administrators and the athletic department "again turned their backs on Patrick."
It also states that "Bliss's very presence at Baylor created an unsafe atmosphere for the student athletes and ultimately led to the murder."
"All of us are very shocked and stunned at the things that have happened," said Sloan Friday on CBS News' The Early Show. "I'm proud of the university for acting responsibly and acting according to our convictions and accepting responsibility."
The school launched an internal inquiry in July into possible NCAA violations after allegations surfaced of improper payments to players following Dennehy's death. Bliss and Stanton resigned Aug. 8.
Last week, secretly taped conversations were released in which Bliss could be heard trying to get players and assistant coaches to go along with a plot to say Dennehy was a drug dealer.