"We don't understand the surprising decision by the management of the Istanbul Lisesi," said the German foreign ministry.
"It is too bad that the good tradition of pre-Christmas intercultural exchanges at the school with a long German-Turkish tradition has been suspended," it said.
"We are of course taking this up with our Turkish partners."
Set up in 1884, Istanbul Lisesi is a Turkish-German bilingual state school but is partly backed by the German government.
The school denied any such ban.
"The reports in German media about restrictions on Christmas festivities of German teachers do not reflect reality," it said.
"A concert was cancelled by the German teachers in question without explanation and there is no question of the school or its management placing an obstacle in its way or prohibiting it."
Ruling AKP party MP Mustafa Yeneroglu also denied the claims, saying "such false reports do nothing for Turkey-Germany relations".
German politicians had reacted with fury over the reports.
Left party lawmaker Sevim Dagdelen told Tagesspiegel the government must "immediately summon the Turkish ambassador and send a note of protest to Ankara".
The Greens' education policy spokesman Ozcan Mutlu said the alleged ban is "simply shocking".
If the ban remains, then the question of whether German taxpayers should continue to fund the school must be examined urgently, he told the media group Redaktionsnetzwerk.
Andreas Scheuer, the general secretary of the CSU - Chancellor Angela Merkel's Bavarian allies, said the move was "new proof that (President Recep Tayyip) Erdogan's Turkey is burning all bridges with Europe".
Christmas is part of Germany, and that applies too for a German school abroad, Scheuer told the Funke regional media group.
Relations between Ankara and Berlin have been strained in the wake of the July failed military coup, with Germany repeatedly expressing concern over the scope of a massive crackdown on Erdogan's opponents.
Developments in Turkey have a strong resonance in Germany, home to a three-million-strong ethnic Turkish population, the legacy of a massive "guest worker" programme in the 1960s and 1970s.