How can I resolve "Error: No developer directory found at /Developer"?

sudo xcode-select -switch /Applications/Xcode.app/Contents/Developer

You could also do this instead ...

sudo ln -s /Applications/Xcode.app/Contents/Developer /Developer

Everything you guys answered is correct. But for those who hit the following error are missing a step:

Error:

  "xcode-select: Error: Path "/Applications/Xcode.app/Contents/Developer" is not a directory."

Missing step:

Double click your xcode 432.dmg. Now don't double click the xcode.app to use it. Instead copy it /Applications folder and then open it from there to install xcode.

Now use terminal command

 sudo xcode-select -switch /Applications/Xcode.app/Contents/Developer

Thats it. Your error won't happen again and Filemerge will work now.