Hamilton, winner at Hockenheim in 2008, skidded off and sent his McLaren sideways into the tyre barriers.
“I’m in the wall, the car is damaged. Heavily,” he said over the team radio.
While Germany’s Adrian Sutil was fastest for Force India in treacherous conditions, compatriot and seven times world champion Schumacher stood out at the opposite end of the timesheets on his first home appearance for Mercedes.
The 41-year-old’s quickest lap was 0,341 better than Japanese Sakon Yamamoto, preparing for only his second race since 2007.
Schumacher, back at Hockenheim after a four-year absence, had talked on Thursday of his hopes of getting back on the podium.
McLaren had hoped to get some testing miles on their new floor and ‘blown diffuser’ but the rain and spray made that difficult.
Hamilton and team mate Jenson Button took shelter in the garage for much of a rainswept morning, with the former crashing out 20 minutes from the end after completing just eight timed laps.
The impact, after the McLaren snapped right and skimmed across the grass, damaged three corners of the car.
Button, the reigning world champion who is 12 points behind the younger Briton, ended the murky session third fastest with 16 laps under his belt.
Sutil, always good in the rain, took advantage of a drying track towards the end of the morning to post a best time of 1:25,701.
Ferrari’s Brazilian Felipe Massa was second quickest despite multiple spins while compatriot Rubens Barrichello, a winner for the Italian team at Hockenheim in 2000, continued Williams’s signs of improvement with fourth place.
More surprisingly, in a reflection of the fickle conditions, Germany’s Timo Glock was 12th fastest for newcomers Virgin Racing.
Home favourite Sebastian Vettel, in the Red Bull, was only 11th — although his late quick lap was interrupted by a slower Lotus — while Australian team mate Mark Webber lapped 14th quickest.
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