It was Pramac Racing rider Martin's second Sprint race victory of the season, moving him into second position in the championship behind Francesco Bagnaia (Lenovo Ducati), who claimed the runner-up spot.
Jack Miller turned his front row qualifying performance into a third-place finish on the Red Bull KTM after battling with Bagnaia for the lead on the opening laps.
There was disappointment for Repsol Honda's Marc Marquez, who could only finish 11th as he was beaten in a MotoGP race at the Sachsenring for the first time in his career.
Marquez, who crashed three times in total over the course of Q1 and Q2, will be hoping to make amends in the main race on Sunday.
Aussie Miller took the lead into the first corner, but Bagnaia quickly reclaimed the position, riding around Miller's outside to hold the inside line for the next turn.
Marquez was fifth on the opening lap behind Jorge Martin and Luca Marini (VR46 Ducati), who made slight contact as they shuffled for position on the first lap.
Bagnaia ran wide at Turn 1 at the start of lap two, leaving the door wide open for Miller.
Marquez dropped to seventh after he went wide at the first corner on the third lap, while Binder was making progress on the KTM, climbing to fifth.
At the front, Bagnaia led again from Miller into Turn 11, but the Aussie was soon back ahead, out-braking his Ducati rival into Turn 1.
Miller appeared to baulk Bagnaia on the run towards Turn 11 on lap four and Martin seized his chance, pulling off a double overtake to lead the race for the first time.
Bagnaia then moved into second on the next lap, passing Miller at Turn 11.
Martin was half-a-second faster than anyone else as he began to open a gap at the front.
He extended his lead to 1.4s by lap nine and stretched further clear, opening a cushion of more than two seconds.
A battle raged behind the leading trio for fourth spot between Marini, Binder and Johann Zarco (Pramac Ducati), who mounted a late charge.
On the penultimate lap, Binder dived past Marini on the brakes into Turn 1 but went slightly wide, allowing the Italian to cut back on his inside.
On a pulsating final lap, there was contact between Zarco and Binder at the fast waterfall corner, with the KTM rider forced wide after Zarco went for a gap on his inside.
Martin wrapped up a convincing victory ahead of championship leader Bagnaia by 2.468s, with Miller securing the last spot on the rostrum, around eight-tenths further adrift.
Marini stayed clear of the drama behind him for fourth with Zarco crossing the line in fifth ahead of Binder.
The clash between Zarco and Binder was reviewed by the stewards, but no further action was deemed necessary.
Aprilia Racing's Maverick Viñales was a faller at Turn 1 at the start of lap 12.