In my case (TypeScript based project), I had to do the following to fix the error:

1. Add types for jest-dom package (@testing-library/jest-dom has already been added)

   yarn add -D @types/testing-library__jest-dom

2. Add below under compilerOptions in tsconfig.json

   "types": ["node", "jest", "@testing-library/jest-dom"],

3. Add below on top of your test files (please refer @Greg Wozniak's comment above to include below import statement only in setupTests.js rather than import it in every test file)

   import '@testing-library/jest-dom'