After World War I the Social Democratic Party and the newly founded Communist Party of Germany (KPD, which consisted mostly of former members of the SPD) became bitter rivals, not least because of the legacy of the German Revolution. Under Defense Minister of Germany Gustav Noske the party aided in putting down the Communist and left wing Spartacist uprising throughout Germany in early 1919 with the use the Freikorps. While the KPD remained in staunch opposition to the newly established parliamentary system, the SPD became a part of the so-called Weimar Coalition, one of the pillars of the struggling republic, leading several of the shortlived interwar cabinets. The threat of the Communists put the SPD in a difficult position. The party had the choice between becoming more radical (which could weaken the Communists but lose its base among the middle class) or stay moderate, which would damage its base among the working class. On July 20, 1932, the SPD-led Prussian government in Berlin, headed by Otto Braun, was ousted by Franz von Papen, the new Chancellor, by means of a Presidential decree. This development proved to be a significant factor contributing to the ultimate downfall of the Weimar Republic. Following the appointment of Adolf Hitler as chancellor on January 30, 1933 by president Hindenburg, the SPD received 18.25% of the votes during the last (at least partial) free elections on March 5, gaining 120 seats. These were not enough seats to prevent the ratification of the Enabling Act, which granted extra constitutional powers to the government, by two-thirds majority, as the SPD was the only party to vote against the act (the KPD being already outlawed and its parliamentary representatives under arrest, dead, or in exile). It still holds to this day a certain pride in being the only party that voted against it. After the passing of the Enabling Act, the party was finally banned by the Nazis on July 14, 1933.

Being the only party in the Reichstag to have voted against the Enabling Act (with the Communist Party prevented from voting), the SPD was banned in the Summer of 1933 by the new Nazi government. Many of its members were jailed or sent to Nazi concentration camps. An exile organization was established first in Prague. Others left the areas where they had been politically active and moved to other towns where they were not known. Friedrich Kellner, an organizer for the SPD in Mainz from 1920 to 1932, moved to Laubach, Oberhessen, where he then spent the war years risking his life to write his diary, "My Opposition". This diary was exhibited in the George Bush Presidential Library in 2005 to commemorate the 60th anniversary of VE Day. Between 1936 and 1939 some SPD members fought in Spain for the Republic against Franco and the German Condor Legion. After the annexation of Czechoslovakia in 1938 the exile party resettled in Paris and after the defeat of France in 1940 in London. Only a few days after the outbreak of the World War II in September of 1939 the exiled SPD in Paris declared its support for the Allies and for the military removal from power of the Nazi government.