We formulate an effective Schrödinger wave equation describing the quantum dynamics of a system of D0-branes by applying the Wilson renormalization group equation to the worldsheet partition function of a deformed σ-model describing the system, which includes the quantum recoil due to the exchange of string states between the individual D-particles. We arrive at an effective Fokker-Planck equation for the probability density with diffusion coefficient determined by the total kinetic energy of the recoiling system. We use Galilean invariance of the system to show that there are three possible solutions of the associated non-linear Schrödinger equation depending on the strength of the open string interactions among the D-particles. When the open string energies are small compared to the total kinetic energy of the system, the solutions are governed by freely-propagating solitary waves. When the string coupling constant reaches a dynamically determined critical value, the system is described by minimal uncertainty wavepackets which describe the smearing of the D-particle coordinates due to the distortion of the surrounding spacetime from the string interactions. For strong string interactions, bound state solutions exist with effective mass determined by an energy-dependent shift of the static BPS mass of the D0-branes.Despite the enormous amount of activity over the past few years towards understanding the dynamics of Dirichlet p-branes [1], the problem of demonstrating that a system of N moving D-particles can form a bound state is still unresolved. It is relevant to the Matrix Theory conjecture [2] in which these particles are interpreted as Kaluza-Klein modes of 11dimensional M-Theory compactified on a circle and are described by the supersymmetric N × N matrix quantum mechanics that is obtained from dimensional reduction of N = 1 supersymmetric Yang-Mills theory in ten dimensions. The existence of such a tower of states is equivalent to the statement that the quantum mechanics admits exactly one bound state for each N. The original threshold bound state problem was addressed in [3] and recent progress has been made in [4]. However, beyond the proof of existence in the case N = 2, the general case N > 2 remains in large part an open problem. In this paper we shall address the bound state problem for a system of N non-relativistic, recoiling D0-branes by studying their moduli space dynamics in certain limits.The effective worldvolume dynamics of a single Dp-brane coupled to a worldvolume gauge field and to background supergravity fields is described by the action [1]