Thiago started the 2016–17 season under new club manager Carlo Ancelotti by winning the 2016 DFL-Supercup with a 2–0 victory against his club's rival Borussia Dortmund on 15 August 2016. On 21 September, he scored his first goal of the season in a 3–0 victory over Hertha BSC. Thiago contributed one goal and one assist in a 3–0 victory over RB Leipzig and was named Man of the match on 22 December. On 16 February 2017, he scored two goals and provided one assist as Bayern defeated Arsenal with a 5–1 victory in the first leg of the Champions League round of sixteen tie. On 28 April, he signed a new four-year contract until 2021. He scored nine goals and had nine assists throughout the season.