In Nazi Germany, transgender people were prosecuted, barred from public life, forcibly detransitioned, and imprisoned and killed in concentration camps. Though some factors, such as whether they were considered "Aryan", heterosexual with regard to their birth sex, or capable of useful work had the potential to mitigate their circumstances, transgender people were largely stripped of legal status by the Nazi state.

Under the German Empire (from 1871 to 1918) and Weimar Germany (from 1918 to 1933), laws such as Paragraph 183 existed which were used to prosecute transgender individuals. These laws were inconsistently enforced, often leaving transgender people vulnerable to the arbitrary decisions of individual police officers. In 1908, thanks to the advocacy of Magnus Hirschfeld, Germany instituted the ability for transgender people to obtain transvestite passes, which shielded them from legal consequences for being publicly transgender. From the end of World War I until 1933, transgender people enjoyed previously unprecedented freedoms and rights. Large leaps were made in transgender medicine through the Institute for Sexual Science, and transgender culture flourished in Berlin.

Following the 1932 Prussian coup d'état and the Nazi seizure of power in 1933, transgender movements, gathering places and institutions, such as the first homosexual movement, the Eldorado nightclubs, and the Institute for Sexual Science were dissolved, often by force. Both trans men and trans women were targeted under renewed enforcement of Paragraphs 175 and 183, and their transvestite passes were revoked or ignored. Books and texts relating to transgender experiences or medicine were destroyed as "un-German".

Transgender people were imprisoned and murdered in concentration camps, though the exact number killed is unknown. According to the Museum of Jewish Heritage, the German government "brutally targeted the trans community, deporting many trans people to concentration camps and wiping out vibrant community structures."

The term transgender, an English-German cognate, was not coined until 1965 and not widely accepted as a universal term until the 1990s. The German word transsexualismus (lit. 'transsexualism', adapted into English as the term transsexual) was first coined in 1923 by Magnus Hirschfeld, but would not enter widespread use until 30 years later with the work of Harry Benjamin. Before these terms, in German the term transvestit (lit. 'transvestite', masculine) was used to refer to transfeminine individuals, and the term transvestitin (lit. 'transvestite', feminine) was used to refer to transmasculine individuals. In part because no alternative term was widespread, most Western transgender people of this time period self-identified as "transvestites". Modern literature on the subject largely uses the term "transgender" to refer to these individuals as a more accurate description of their gender identity. According to Joanne Meyerowitz and other scholars of the topic, it is difficult if not outright impossible to know what pronouns transgender or transvestite people in these times would have preferred, and as such it is common practice to simply use the pronouns which align with what is known of their gender presentation (i.e., he/him for individuals who present masculine, and she/her for individuals who present feminine).

In the Weimar Republic, the government which ruled Germany from the end of World War I in 1918 until Adolf Hitler seized power in 1933, transgender people gained rights and freedoms unprecedented in Europe at the time, and much early progress was made in transgender medicine. The key figure in these advancements was Jewish-German physician and sexologist Magnus Hirschfeld, who founded both the Scientific-Humanitarian Committee in 1897—the main organization devoted to the decriminalization of homosexuality—and the Institut für Sexualwissenschaft (Institute for Sexual Science) in 1919. Other notable transgender rights activists of the period include Friedrich Radszuweit, a publisher and author who founded the Bund für Menschenrecht (Federation for Human Rights) to advocate for gay and transgender rights in 1920, and Max Spohr, a publisher among the first to print LGBT media.

Under the German Empire before World War I, there was no law which explicitly outlawed being transgender, unlike how Paragraph 175 explicitly outlawed male-male homosexuality. Paragraph 183 outlawed public crossdressing, which along with Paragraph 360 (a public nuisance law) was sometimes used against transgender people; however, these laws could only be applied if a public nuisance was determined to have occurred. Additionally, in practice these laws could not be applied to transgender people who were able to pass as their preferred gender. These qualities often led to uneven enforcement of the laws, and openly transgender or gender-queer people in Germany lived under constant threat of legal charges at the whim of individual police officers. In 1908, Hirschfeld discussed the matter with the Berlin Police, and convinced them to allow transgender people to obtain transvestite passes to avoid legal consequences for cross-dressing, one of the earliest known examples of legal recognition for transgender people.

In large part due to the less restrictive laws and LGBT-friendly culture of 1920s Berlin, known as the 'Golden Years', transgender culture began to flourish in the city, and Berlin became known as the queer capital of the world. In 1930, the world's first transgender magazine, Das 3. Geschlecht (The Third Gender), was published by Friedrich Radszuweit's publishing company in Berlin, as was Die Freundin (The Girlfriend), a lesbian magazine which would often publish articles for transgender women. In response to the advocacy of Hirschfeld and others of the first homosexual movement, the Weimar Republic even went so far as to permit legal name changes for transgender people.