At the midpoint of the season, pre-qualifiers were re-evaluated. After a 4th-place finish in the Detroit Grand Prix, Andrea de Cesaris (Rial) was promoted to the top 26 cars automatically allowed for qualifying sessions. Relegated to pre-qualifying was Nicola Larini in the turbocharged Osella.
Before the German Grand Prix, Williams announced that Thierry Boutsen would be joining the team in 1989 replacing Nigel Mansell who would be joining Ferrari.
For the first half of the season, Ferrari drivers Michele Alboreto and Gerhard Berger had been hampered by both the lack of throttle response and by high fuel consumption from their V6 turbo engines. The fuel consumption had often seen both drivers forced to continually back off their race pace in order to be able to have enough fuel to finish. Early in the season the teams Technical Director John Barnard had suggested to the teams engineers that they reduce the rpm's by 1,000 and re-map the engine to compensate for the loss of power. As the relationship between the team and Barnard, who was still based in England rather than at the factory in Maranello, was strained at best, the engineers had ignored his advice. However, after both cars had run out of fuel in Britain (costing pole winner Berger 5th place as he ran out in sight of the flag while Alboreto had run dry 5 laps earlier), changes were made to the Tipo 033A prior to Germany that just happened to match Barnard's earlier suggestions. Predictably the result was no loss of power while the fuel consumption was significantly improved, though it was still no match for the Honda V6 that powered the McLarens.
The grid was composed again of a front row of two McLaren-Honda's of Ayrton Senna and Alain Prost, the two Ferrari's of Gerhard Berger and Michele Alboreto on the second row, with by the Lotus-Honda of Nelson Piquet, and the first atmo car, the Benetton-Ford of Alessandro Nannini on the third row.
Qualifying had been severely hindered by violent thunderstorms which struck the area throughout the weekend. When the track was dry, the Ferraris went through the speed trap at 328 km/h (204 mph) on Hockenheim's long straights, though BBC television commentator Murray Walker stated during the race coverage that the McLarens actually topped 207 mph (333 km/h) in final qualifying, which made them faster than the Ferrari's, although they were some 7 km/h (4 mph) slower than the speeds recorded during qualifying for the 1987 race when the turbo cars had approximately 300 bhp (224 kW; 304 PS) more than they did in 1988. The straight line speed difference was the major reason Senna's pole time in the McLaren was 1.98 seconds slower than Mansell's the previous year in a Williams-Honda (Mansell himself qualified his Williams-Judd 7.2 seconds slower in 1988 despite Williams trying a very low rear wing and lower rear bodywork on the cars in practice in an effort to maximise straight line speed). The fastest of the 'atmo' cars on the long straights was Ivan Capelli's March-Judd V8 which was recorded at 312 km/h (194 mph). Nannini, the fastest atmo qualifier, was 3.6 seconds slower than Senna.
As had become standard practice in 1988, the Lotus-Hondas of Piquet and Satoru Nakajima weren't able to match the similarly engined McLarens, with Piquet qualifying 3, and Nakajima 4 seconds slower than Ayrton Senna's pole time. The turbocharged Arrows-Megatrons of Derek Warwick and Eddie Cheever also failed to impress in qualifying, with Warwick 5.8 and Cheever 6.5 seconds slower than Senna. Arrows' engine guru Heini Mader still had not solved the pop-off valve problem which was often leaving Warwick and Cheever with only between 2.1 and 2.3 bar of turbo boost compared to the full 2.5 bar available to Honda and Ferrari engines. This saw the Megatron engines running approximately 40-80 bhp less than their rated 640 bhp (477 kW; 649 PS). The Arrows cars recorded a maximum of 315 km/h (196 mph) through the speed trap, much slower than both the McLarens and Ferraris, and barely faster than the naturally-aspirated March-Judds.
The only German teams in Formula One in 1988, Zakspeed and Rial, both qualified their cars for the race. Andrea de Cesaris qualified his Rial-Ford in 14th (6.4 seconds behind Senna), while Bernd Schneider (the only German driver in the field) and his team mate Piercarlo Ghinzani qualified their Zakspeed 881 turbos in 22nd and 23rd places respectively. Both Zakspeeds were over 8 seconds slower than Senna's McLaren-Honda. The only other turbo car in the field, the Osella of Nicola Larini which used an ancient Alfa Romeo V8 turbo engine (renamed the Osella 890T in 1988), qualified in 19th, faster than the Zakspeeds but still 7.5 seconds off the pole.
The rain continued until Sunday morning, when it finally stopped, but there was concern on which type of tyre would have been the most suitable for the race; in the end, everyone started on wet tyres, with the exception of Nelson Piquet who gambled on the track drying out (after qualifying when asked about his prediction for the race, Piquet replied cheekily "The McLarens to take each other out and leave the race for me"). Ayrton Senna led off the start line from Berger and Nannini. Piquet suffered a first-lap retirement, aquaplaning off the track at the Ostkurve due to his slick tyres. Alain Prost fought back from a bad start where he dropped to 4th to recover to 2nd behind Senna, but failed to catch him: traffic problems and a late spin coming out of the Ostkurve due to overheating tyres on a drying track saw him 13 seconds behind at the end of the race.
On lap 9, Philippe Alliot went off at the Ostkurve chicane after going offline to allow Senna to lap him. Alliot had changed to slicks to exploit the developing dry line and would have been in a promising position had the track continued to dry. In an almost identical spin and consequence to Piquet's lap one incident, Alliot's Lola-Ford was out on the spot with his right rear tyre almost broken off in the accident.
Senna and Prost maintained their 1-2 until the chequered flag, despite the rare late spin by the Frenchman coming out of the Ostkurve chicane. It was the sixth 1-2 of the year for McLaren.
Nannini had been in 3rd and then 4th place consistently until he had to pit on lap 38 to repair the broken throttle bracket of his Benetton. An angry Nannini rejoined 4 laps down and despite finishing only 18th, he set the fastest lap of the race. It was the second, and last, 'atmo' fastest lap of the season after Mansell's fastest lap at Silverstone. Ironically the two fastest laps set by the atmo cars had been set at two of the three fastest circuits on the 1988 calendar which suited the turbos much more than the atmos, though both were also set in wet conditions.
Ferrari finished in 3rd and 4th place with concerns for fuel consumption, though improvements saw fuel as less of a problem then in previous races, whilst Ivan Capelli, with no clutch for the last 30 laps, took 5th place. Thierry Boutsen gained a point for 6th place in his Benetton, in a car set up for the dry.
Nigel Mansell retired from 7th with a spin after a broken bolt had jammed his gearbox. Bernd Schneider earned his first Grand Prix finish in 12th in his home race which turned out to be the highest finish of the season for the Zakspeed team.Note: Only the top five positions are included for both sets of standings.