Fischer founds, in 1927, the Kaiser Wilhelm Institute of Anthropology, Human Heredity and Eugenics in Berlin-Dahlem together with Richard Goldschmidt and Carl Correns, and is its Director until 1942. He is one of the leading researchers in the new field of heredity, which is flourishing internationally. With Erwin Baur and Fritz Lenz, he writes what is regarded as the standard work on human heredity, and would remain so even during the post-war period. As the Vice Chancellor of Berlin University, he supports the expulsion of Jewish academics.
Under the Third Reich, he aligns his Institute with Nazi objectives and becomes a judge at the Heredity Health Court in Berlin. His Institute issues hundreds of sterilisation recommendations. At the neighbouring Harnack House, Fischer organises training courses for public medical officers and judges. He is also a guest at the intellectual Wednesday Society to which Ludwig Beck – who would later attempt to assassinate Hitler – and the physicist Werner Heisenberg also belong. In 1942, he passes on the position as Institute Director to his closest student, Otmar Freiherr von Verschuer.