If you apply for German citizenship by descent, you do not have to have ever held German citizenship. However, with regard to your ancestors, it depends on the legal grounds on which your claim is made. You can either claim that your ancestors have lost their citizenship during the nazi era or that your ancestors were denied citizenship during the nazi era based on political or racist persecution or after the nazi era based on gender discrimination. If the claim is based on the loss of citizenship, you must prove that your ancestors have been in possession of German citizenship at one point. Naturally, if you claim that your ancestors have been denied citizenship, they must never have held German citizenship.
Further information on the different legal grounds and their requirements you can find here.