The Verdict: Clear Path
Your family's case belongs under the persecution route, which is far more generous than ordinary descent. Take the Germany Historical Displacement quiz instead of this one.
Article 116(2) of the Basic Law restores citizenship to former Germans deprived of it on political, racial or religious grounds between 1933 and 1945, and to their descendants, as of right. Section 15 of the Nationality Act, in force since August 2021, covers families the persecution affected another way.
There is no generational limit, no deadline and no residence or language requirement, and you keep your current citizenship. An ancestor's naturalisation abroad, which ends most ordinary descent claims, does not break these.
Applications go to the Bundesverwaltungsamt, which decides which provision fits your facts.