Wuppertal in 1970: Brothers Christian and Joachim von Grumbkow teamed up with Dutch singer Nanny de Ruig (and Christian's wife) to form a band, which was then expanded to include musicians Christoph Noppeney (violin, viola, flute, piano), Peter Käseberg (bass, guitar, vocals), and Michael Bruchmann (drums, percussion). They named themselves Hölderlin after the German Romantic poet. In August 1971, they signed a record deal with Rolf-Ulrich Kaiser's Pilz label and began working on their first album in early 1972. Hölderlins Traum was recorded at the legendary Dierks Studios in Stommeln, produced by Rolf-Ulrich Kaiser. Peter Bursch (sit) and Mike Hellbach (tab) from Bröselmaschine and Walter Westrupp (rec) were the guest musicians. They played a floating progressive, predominantly acoustic folk rock with a delicate yet expressive female voice. Acoustic guitars and a few percussion instruments dominated, often complemented by keyboards (Mellotron and organ) and other instruments such as flute, recorder, violin, cello, tablas, and sitar. This variety of instruments was thanks to the nine musicians in total.

The album sold surprisingly well, with around 5,000 copies sold, even though the band was relatively unknown. In addition, their sound was by no means suitable for the masses, with very complex arrangements and significantly larger instrumentation than usual prog-folk albums. Despite all the lyrics being sung in German, their debut album was also celebrated by the music press in Europe and the USA as extremely unique. The original German vinyl is still a sought-after collector's item today.