Northern Ireland's Rea started eighth at the Lausitzring but carved his way through the field to lead by lap five.
Davies moved in front after the midway point as he eased to victory, with Marco Melandri completing the podium.
Rea's main title challenger, Tom Sykes, was fourth as the gap increased to 70 points with four rounds left.
Davies' win ahead of Rea mirrored the result of Saturday's first race.
On Sunday, Rea took his Kawasaki from the third row of the grid to third place on lap one, and up to second on the following lap before passing pole-sitter Melandri.
Ducati rider Davies was also a third-row starter and worked his way up to challenge Rea before moving through to take command of the race.
"I was in aggressive mode, I gave 100% and emptied the tank," said Rea, who is on course for a third straight World Superbike triumph.
"I was beaten by the better guy but we worked hard and now move on to the next round."
World Superbike champion Jonathan Rea finished second in race two in Germany to extend his series lead, as Welshman Chaz Davies secured a double.