On 3 July 1187 at the Horns of Hattin, near Tiberias and the Sea of Galilee, Saladin routed the Christians and captured the unbelievably precious relic of the True Cross. The king of Jerusalem, Guy of Lusignan, was taken prisoner and on 2 October the Holy City surrendered. Pope Urban III is said to have died of shock and grief. Within ten days his successor, Gregory VIII, issued an impassioned appeal for a new crusade, explaining the catastrophe in terms of punishment for the sins not only of the Latin settlers but also of all Christians, whom he summoned to acts of penance. Meanwhile Conrad of Montferrat and the surviving remnants of the nobility and military forces of the Kingdom of Jerusalem took refuge behind the walls of Tyre, courageously defending it against Saladin's onslaughts and sending desperate messages to the West.

Richard the Lionheart took the cross as soon as he heard the news. Other leaders showed less sense of urgency. Richard's father, Henry II, and King Philip Augustus of France continued to wage war on each other, to outraged public reaction. Eventually they called a truce at Gisors in mid-January 1188, took the cross and agreed to levy the so-called Saladin tithe (10 per cent on all movable property and income). However, it took a long time for the crusade to get off the ground. Richard, Philip and Henry continued fighting. Henry died shortly after taking the cross, and Richard was crowned on 3 September 1189. The delays caused a storm of protest, ‘not only from ecclesiastics but also from troubadours and trouvères: there can be no doubt that public opinion was scandalized’. By contrast, Frederick Barbarossa of Germany had responded quickly and decided on a land route to the Holy Land, but after he had successfully marched an army through hostile territory and Asia Minor, he died suddenly as he was attempting to cross a river. After this the German contribution more or less collapsed. This was to have disastrous consequences: Runciman comments that ‘Saladin was right to see his salvation in the Emperor's death’, and ‘the grim fiasco of the Emperor's Crusade made it more than ever urgent that the kings of France and England should arrive in the East’.