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 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 drivers' title in 1994. Heading into the European Grand Prix, Benetton driver Schumacher was leading the Drivers' Championship with 72 points, 17 points ahead of Williams driver Damon Hill. In the Constructors' Championship, Benetton were leading with 100 points, 12 points ahead of Williams.
Prior to the race, Coulthard announced that he was moving to the McLaren team for the 1996 season. Ferrari then announced that Eddie Irvine would partner Schumacher in 1996, having bought out his contract from Jordan. Jordan subsequently announced Martin Brundle would move from the Ligier team to partner Rubens Barrichello. Several teams brought upgrades to the cars into the race – the Williams team used the upgraded "B" versions of the FW17 chassis for the second time, after its début at the previous race in Portugal. 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.
Qualifying saw Coulthard take his third consecutive pole position for Williams, with teammate Hill alongside him. Schumacher qualified third, four-tenths of a second behind Coulthard. The qualifying session was affected by rain, and media attention focused on Coulthard consistently outperforming Hill. Both Barrichello and Papis revealed that they expected to fail routine drugs tests due to decongestants containing the banned substance ephedrine.
The race began with a damp track surface. Coulthard held the lead from the start, while Schumacher overtook Hill. Hill’s race was compromised by a collision with Alesi on lap 40, resulting in a front wing change and later a spin, leading to his retirement on lap 58. Alesi led for a significant portion of the race, but was overtaken by Schumacher two laps from the end. Schumacher won with a time of 1:39:59.044.
Schumacher’s win retained his position at the top of the Drivers’ Championship, 27 points ahead of Hill. Benetton were now 20 points ahead of Williams in the Constructors’ Championship. Journalist Alan Henry described the race as the best of the season, suggesting Schumacher’s performance marked a turning point in his career.
Following the race, Hill acknowledged that his championship hopes were over, but pledged to compete for wins in the remaining races. Schumacher commented that Hill’s attempts to overtake were not forceful. Alesi blamed Hill for their collision, and Ferrari designer John Barnard attributed Alesi’s loss of the lead to being held up by lapped traffic. The FIA confirmed that all drivers tested at the race passed anti-doping tests.
Coulthard was forced to use the Williams spare car, which had been set up for Hill, after spinning off the track during his reconnaissance lap. The race was also delayed after Papis stalled his Footwork on the starting grid.