German Idealism is best understood as the philosophical manifestation of the modern demand for rationality and freedom. It grew out of Kant's attempt to defeat the threat posed to this demand by Hume's scepticism and determinism. Fichte, Schelling and Hegel all shared Kant's aspiration to develop philosophical knowledge that could withstand the most rigorous sceptical scrutiny, and thereby to determine the conditions of a free and rational life. Despite this shared aspiration, however, these thinkers disagreed with Kant, and with each other, about how scepticism could be defeated. Their different reactions to scepticism led them to different conclusions about what it means to be rational and free, and thus to different conceptions of modernity. These methodological and substantive disagreements among the German Idealists provided the impetus for the progressive transformation of Kant's initial response to Hume into a distinctive philosophical movement.

Kant aimed to save freedom and rationality by employing what has come to be known as the transcendental method. Taking as given the fact that we experience a world of objects and events, Kant sought to determine the conditions that must obtain to make this possible. The first and most general condition he identified is that the objective world must be encountered and represented by the thinking subject. This led Kant to undertake a critical examination of the process of cognition, in order to ascertain both what thinking subjects can know and what is necessarily unknowable.