In 1189 the Holy Roman Emperor Frederick I Barbarossa sought and obtained permission to lead his troops on the Third Crusade through the Byzantine Empire. But Isaac was suspicious that Barbarossa wished to conquer Byzantium: the reasons for this suspicious attitude were the diplomatic contact of Frederick with the Bulgarians and the Serbians, foes of the Byzantine Empire during this period, also Barbarossa's previous feud with Manuel.

The rumors of 1160s about a German invasion in the Byzantine Empire were still remembered in the Byzantine court during Isaac’s reign. In retaliation Barbarossa's army occupied the city of Philippopolis and defeated a Byzantine army of 3,000 men that attempted to recapture the city.

The Byzantine troops managed to constantly and successfully harass the Crusaders but a group of Armenians revealed to the Germans the strategic plan of the Byzantines. The Crusaders, who outnumbered the Byzantines, caught them unprepared and defeated them. Thus compelled by force of arms, Isaac II was forced to fulfill his engagements in 1190, when he released imprisoned German emissaries who were held in Constantinople, and exchanged hostages with Barbarossa, as a guarantee that the crusaders would not sack local settlements until they departed the Byzantine territory.