The Verdict: Need More Info
It turns on whether your ancestor was persecuted between 1933 and 1945 on political, racial or religious grounds. Search the Arolsen Archives online and any restitution files to find out, as the answer changes everything.
If they were, Article 116(2) of the Basic Law or Section 15 of the Nationality Act applies, with no deadline, no generational limit, no residence or language requirement, and no harm done if the ancestor took another citizenship. If not, only the far narrower ordinary descent rules apply.
When they left and where they went usually settles it. Departures between 1933 and 1939 are worth investigating whatever the family story, as are destinations typical of flight, such as Britain, Palestine, Shanghai, Cuba, Bolivia, Brazil and Argentina.
Where to look: passenger manifests and visa files, which often record the reason for leaving; restitution and compensation files, which many families filed without later generations knowing; the Arolsen Archives; and Jewish community registers from the home city. Records of political persecution are mostly in regional state archives.
Neither route has a deadline, so nothing is lost by investigating first.