The race marked the return to the Formula One calendar for the Nürburgring track after being off the calendar since the 1985 season, due to commercial disputes off the circuit involving the circuit's promoters. Its return to the World Championship schedule was facilitated by a surge of interest in the sport throughout Germany as a result of Michael Schumacher's 1994 drivers' title. The previous year, the European round was held at the Circuito Permanente de Jerez in Spain, a late replacement for the cancelled Argentine Grand Prix.
Heading into the 14th race of the season, Benetton driver Schumacher was leading the Drivers' Championship with 72 points; Williams driver Damon Hill was second on 55 points, 17 points behind Schumacher. Behind Hill and Schumacher in the Drivers' Championship, David Coulthard was third on 39 points in a Williams, with Johnny Herbert and Jean Alesi on 38 and 34 points respectively. In the Constructors' Championship, Benetton were leading on 100 points and Williams were second on 88 points, with Ferrari third on 62 points.
There was one driver change heading into the race. Gabriele Tarquini replaced Ukyo Katayama at Tyrrell; the latter choosing not to race on the advice of doctors after a crash at the Portuguese Grand Prix. Katayama had sustained a strained neck and bruising in the crash, in which his car had rolled several times following a startline collision with another car.
Prior to the race weekend, Coulthard announced that he was moving to the McLaren team for the 1996 season. He had first signed a contract with McLaren in October 1994 when his full-time Williams drive for 1995 had not been confirmed, and his one-year deal with the latter was not renegotiated due to his McLaren commitment. McLaren also confirmed that Mika Häkkinen and Jan Magnussen would continue in their existing roles as race and test driver for the team respectively, leaving Mark Blundell without a contract for 1996. Coulthard's deal was officially confirmed on the day of the race itself. Meanwhile, Coulthard's prospective replacement, Jacques Villeneuve, had tested a Williams for the first time since being confirmed as Hill's team-mate for 1996, running for two days at the Monza track. The Jordan team also announced that it would keep its driver pairing of Rubens Barrichello and Eddie Irvine for 1996 in the week before the race. However, Ferrari then announced that it had bought out Irvine's contract, and that he would be partnering Schumacher at the team for 1996. Jordan subsequently announced that Martin Brundle would move from the Ligier team to partner Barrichello instead.
Some teams brought upgrades to the race – the Williams team used the upgraded "B" versions of the FW17 chassis for the second time, after its début at the previous event, the Portuguese Grand Prix. McLaren also brought upgrades to coincide with the home race of their engine supplier, Mercedes. The team opted to amalgamate the "B" and "C" versions of its troublesome MP4/10 chassis, with a rear end and gearbox from the former. In addition, the Ferrari team brought a revised rear wing and sidepods for its 412T2 car, which both drivers agreed to be an improvement.
The event was the first Formula One race to be held at the Nürburgring track since the 1985 German Grand Prix, so an additional familiarisation session was held prior to the usual practice and qualifying sessions. In this session, Schumacher set a benchmark time of 1:20.418, from Hill, Coulthard, Häkkinen, Heinz-Harald Frentzen (Sauber), Gerhard Berger (Ferrari) and the rest of the field. The drivers, of whom only Berger and Brundle had raced at Nürburgring in a Formula One car before, were uninspired by the circuit: Schumacher described it as "dull" and "easy to learn, with no real challenges" and Coulthard predicted a processional race without much overtaking.
Two practice sessions were held before the race; the first was held on Friday morning and the second on Saturday morning. Both sessions lasted 1 hour and 45 minutes with weather conditions dry in the first session, but wet for the second session. Hill set the fastest time in the first session, posting a lap of 1:19.343, three-hundredths of a second quicker than team-mate Coulthard, in second place. The Benetton cars were third and fifth fastest; Schumacher ahead of Herbert, with Ferrari driver Gerhard Berger fourth, over a second behind Hill. Häkkinen, in a McLaren car, rounded out the top six positions. The wet conditions for the second practice session meant that lap times were slower as there was less grip on the track. Despite the wet conditions, Hill was again fastest with a time of 1:34.906. Coulthard was second, with Frentzen third in the Sauber car, two seconds slower than Hill. The Ferrari cars were fourth and fifth, Berger in front of Alesi. Schumacher and Herbert were sixth and seventh respectively, with Barrichello eighth. Olivier Panis in a Ligier and Mika Salo in a Tyrrell rounded out the top ten positions, both three and a half seconds off the fastest lap time. Amongst the slower runners, Andrea Montermini suffered a worrying moment when his Pacific car shed its left-rear wheel, but he was able to return to his pit garage.
The qualifying session was split into two one-hour sessions; the first was held on Friday afternoon with the second held on Saturday afternoon. The fastest time from either sessions counted towards their final grid position. Both sessions on Friday and Saturday were interrupted by rain, which led to little action on the track. Coulthard clinched his third consecutive pole position, in his Williams, with a time of 1:18.738. He was joined on the front row by team-mate Hill, who was two-tenths of a second behind. Schumacher was third in the Benetton, four-tenths of a second slower than Coulthard, despite lapping fastest in the second part of qualifying. The time he set in the second part of qualifying was still slower than Coulthard and Hill's time set in the first part, and thus he was third quickest overall. Behind the leading three, Berger was fourth with team-mate Alesi in sixth. Eddie Irvine in a Jordan car split them for fifth position. Herbert and Frentzen shared the fourth row of the grid. Despite bringing car upgrades to the event, Häkkinen and Blundell for McLaren could only qualify in ninth and tenth places respectively. Tarquini qualified in nineteenth position, four places behind team-mate Salo, but admitted to feeling out-of-practice by Formula One standards. Several drivers went off in the difficult conditions, including Panis and Montermini. The former driver's crash was caused by a stuck throttle; the resultant damage to the car forced him to switch to the team's spare monocoque. The conditions during the first session were generally faster, with seventeen of the 24 drivers setting their fastest qualifying times in this period.
After qualifying, attention focussed on Coulthard's outperformance of Hill for the fourth time in a row. With only the latter able to challenge Schumacher for the championship, the question of Williams team orders was raised. In response, Coulthard said:
I'm getting rather tired of questions about team orders. I think what everyone wants to see is a motor race, and my first duty to the team is to try and win the constructors' championship. If the circumstances were different, like they were last year [when Coulthard did not compete in all of the races], I would think it entirely fair to do as the team requested [...] But I also think it's fair of Williams not to ask me to slow down if I'm quicker than Damon."
Following the session, Barrichello and Footwork driver Massimiliano Papis revealed that they expected to fail routine drugs tests they had just taken, as both had been taking decongestants, for nasal problems and a cold respectively, which contained the banned substance ephedrine. On Saturday, the team principals also met to discuss future changes to the sport: it was agreed that qualifying would be reduced to one hour-long session for the 1996 season, and a reduction from seventeen to sixteen Grands Prix was confirmed.
The track surface for the start was damp, but dried up as the race progressed. The drivers were scheduled to go onto the track at 09:30 CET (GMT +1) for a 30-minute warm-up session, however the session was delayed until 10:05 CET due to fog and heavy rain. Several drivers went off the track during the session due to the wet weather conditions. Both Williams cars maintained their good performance from qualifying; Coulthard had the fastest time of 1:38.378. Hill was third in the other Williams car; Berger split them in the Ferrari for second position. Schumacher completed the top four, six-tenths of a second behind Coulthard. Approximately 90,000 spectators attended the circuit on race day.
Coulthard was forced to use his spare car, set up for Hill, for the race itself after he spun off the track during his reconnaissance lap. He stalled the engine in the process. The race was scheduled to start at 14:00 CET, but Papis stalled his Footwork car in the starting lights procedure, resulting in the start being aborted. A new start time of 14:05 CEST was planned. Many of the teams started the race with wet weather tyres, but the Ferrari and McLaren teams chose to fit their cars with dry weather slick tyres. The Ferrari mechanics also raised the ride height and increased the downforce levels on Alesi and Berger's cars on the grid, making them more competitive in the wet conditions. Coulthard, from pole position on the grid, held onto the lead into the first corner. Hill, who started alongside Coulthard, had a bad start and was overtaken by Schumacher in the run down to the first corner. Irvine also got past Hill, but was repassed by the Williams driver during the first lap. Further down the order, Frentzen was judged to have jumped the start, while Papis took up his normal grid position instead of starting from the back as he should have done after stalling: both were given ten-second stop-and-go penalties in the early stages of the race for these misdemeanours. Papis' team-mate, Taki Inoue, failed to take the start due to an electronic failure in his Footwork car.
The McLaren cars and the Ferrari of Berger slipped back in the early laps of the race, with both McLaren cars overtaken by the Pacific and Forti cars as they dropped down the order. The McLaren chassis handled badly in the wet conditions, while the throttle response of the Mercedes engine was also too abrupt to be driven effectively in the rain. Berger dropped to ninth, not helped by an incorrectly pressured set of tyres that left him with a handling imbalance, but Alesi moved up to fourth position, overtaking Herbert on lap five and Irvine on lap eight. Berger and the McLarens moved back up the order as drivers made a pit stop for slick tyres. As the front-runners made their stops, Alesi ended up twenty seconds ahead of Coulthard, Schumacher and Hill. By the end of lap 17, most of the drivers had pitted for slick tyres, and the running order had stabilised as Alesi, Coulthard, Schumacher, Hill, Berger and Irvine occupied the top six positions. Frentzen was outside the points in seventh, but on the next lap he collided with Pedro Diniz's Forti while trying to lap him, retiring from the race as a result. Panis and Blundell were also out by this stage, both having spun off the track on lap 15.
Near the front of the field, Hill was faster than third-placed Schumacher and began to catch him. Schumacher defended his position vigorously several times, but Hill eventually passed him. However, Hill then ran wide at the final corner and Schumacher repassed him. Coulthard, in the other Williams, began to suffer from excessive oversteer with his car's handling, dropping to fourth behind Schumacher and Hill, who passed him on laps 21 and 23 respectively. As Schumacher and the Williams drivers battled for position, Alesi was able to extend his lead to 45 seconds. Alesi and Schumacher made their second pit stops on lap 34; Alesi took on enough fuel to finish the race, while Schumacher's was the second of three scheduled pit visits. Alesi exited from his stop just in front of third-placed Hill, who attempted to overtake Alesi on lap 40, the lap before his own pit stop was due to take place. In the process, the two cars made contact and Hill lost his front wing. As a result, he had had to pit to replace the damaged wing, losing time while driving around the track with his damaged car and rejoining behind Coulthard in fourth position. On the same lap, Berger retired with terminal engine problems. After his stop, Hill pushed hard in an attempt to catch Coulthard, but spun out of the race on lap 58. The impact with the tyre barrier was hard enough to cause a minor crack to a bone in his leg, but he escaped serious injury.
Schumacher made his final pit stop on lap 52 from second place, having caught up with Alesi during his third stint. He rejoined some distance behind the Ferrari, but began charging, setting a fastest lap of 1:21.180 on lap 58, almost 1.7 seconds faster than Alesi's fastest lap of the race. Alesi's attempts to keep the lead were not helped by lapped traffic getting in his way, as well as losing five seconds at the Veedol chicane by running wide onto the gravel. In the closing laps, Schumacher caught Alesi, overtaking him on the outside of the chicane on lap 65. Schumacher opened the gap to two and a half seconds, and won the race after 67 laps to secure his seventh victory of the season in a time of 1:39:59.044s. Hill, watching from the side of the track, applauded Schumacher's win; the German attempted to stop his car to give his rival a lift back to the pits, but was unable due to a slipping clutch. Alesi held position to finish second in his Ferrari, with Coulthard third, 35 seconds behind. Completing the points-scorers, Barrichello finished fourth, ahead of Herbert and Irvine. The latter two had battled for much of the race: they collided on lap 31, dropping both behind Barrichello and causing Herbert to make a pit stop for a new front wing; later, Irvine spun while attempting to lap Papis, allowing Herbert back through. Outside the points, Brundle finished seventh for Ligier, ahead of the recovering Häkkinen, whose eighth position, two laps down on Schumacher, was a major disappointment for Mercedes in its home country. Minardi drivers Pedro Lamy and Luca Badoer finished ninth and eleventh, with Salo in tenth position, the latter making an unscheduled pit stop to change a punctured tyre after colliding with Jean-Christophe Boullion during the race; the Sauber driver retired as a result of damage sustained in this incident. Papis, Diniz, Tarquini and Délétraz completed the field. Of the other retirements, Roberto Moreno stopped his Forti with a driveshaft failure, while Montermini endured a fraught pitstop on lap 42. The Pacific team's fuel rig malfunctioned, and, in the confusion, refueller Paul Summerfield sustained a fractured left femur when he was hit by the car as it left its pit box. Montermini consequently ran out of fuel on lap 45.
Journalist Alan Henry described the race as the best of the season so far, even of recent memory, and suggested that Schumacher's performance could mark a watershed in which the German "crossed that indistinct dividing line separating the good from the great". Schumacher's win meant he needed only three more points from the remaining races of the season to win the Drivers' Championship, while Hill would have to win all three Grands Prix, effectively meaning that the Championship was over.
For his part, Hill said that "I am not going to be World Champion this year, but I'll be back. But I don't think I disgraced myself. I put up a good fight, did everything I could to win, and it didn't come off", and pledged to do his best to win the remaining races. Hill later said that the car's steering had felt stiff since his collision with Alesi, making it difficult to drive, but accepted the blame for his retirement. In the weeks after the race, heavy criticism was directed towards Hill, in which pundits felt that he had not been "forceful" enough in his battle with Schumacher. In an interview between the European and Pacific races, Brundle said:
Damon has to do two things. First, he has to establish himself as the No1 at Williams for next year so the team can give him their full support. Second, he has to re-establish himself as a racer. Maybe he needs to lose a front wheel once or twice to re-establish himself.
Schumacher said that Hill made "half-hearted attempts" to overtake during the race, which led to him "getting into trouble". Alesi also blamed Hill for their collision, saying that "I do not know what happened with Damon. I saw his nose alongside me, that's all. I was sideways [turning into the corner] and he hit me. He was too optimistic as normally you cannot do anything at that corner." At a Fédération Internationale de l'Automobile (FIA) World Motor Sport Council meeting on October 19 to discuss driver etiquette, they opted against introducing new rules on the issue. Formula One's governing body emphasised that the International Sporting Code would be enforced on the basis that drivers are free to drive as they wish "provided they do not deliberately endanger another driver or repeatedly obstruct him on a straight", following incidents during the year involving Hill and Schumacher.
Alesi, despite his performance in the early stages of the race, was also criticised by some for losing his lead after letting Schumacher gain time on him in the final laps. Ferrari designer John Barnard later blamed Alesi's hesitance in lapped traffic for the loss of time, the rate of which Henry described as "inexplicable". Alesi blamed his inability to fend off Schumacher on his worn tyres, which had completed half a race distance as opposed to Schumacher's fresher set, and on being held up by Häkkinen and Brundle's battle for seventh position in the closing laps. Alesi was also given the instruction to save fuel with 15 laps to go, suggesting that his one-stop strategy was the incorrect choice.
On November 2, 1995, the FIA announced that none of the drivers who took part in the anti-doping tests at the Portuguese and European Grands Prix had tested positive, including Barrichello and Papis. However, FIA Formula One Safety and Medical Delegate, Professor Sid Watkins, subsequently argued that as ephedrine had no effect on a driver's ability, the sport should not use exactly the same list as the International Olympic Committee (IOC) in any case.Bold text indicates who still has a theoretical chance of becoming World Champion.
Note: Only the top five positions are included for both sets of standings.