Following the disaster of the LZ-2 Zeppelin vowed he would build no further airships, however, within weeks, and persuaded by popular sympathy, he managed to raise further funds from his own resourced, and a second state lottery was promised by the King. Sufficient money was raised to allow the construction of a new airship to go ahead.

The third airship, LZ-3, was based on LZ-2, of similar dimensions and utilising the same engines, but possessed of more functional bow and stern multiple elevators and having a keel cabin installed amidships.
The new airship was built within three months, making her maiden flight on 9 October 1906, lasting two hours, covering 60 miles, and returning to base without incident.

Further flight followed: on being of eight hours, another of twelve hours where the LZ-3 sailed along the Rhine valley and onto Switzerland covering 200 miles. The performance galvanised the authorities in to action: firstly by an award of 500,000 Marks from the Government Airship Commission to aid research, and secondly the placing of an order for two Zeppelins for the Army.

The stringent conditions laid down for the purchase contract included a twenty-four hour endurance flight to cover a distance of no less than 500 miles with a crew of 20, and to include a landing on return.

Zeppelin realised the LZ-3 did not possess the endurance necessary to comply with these conditions and proposed the construction of a larger ship, the LZ-4.

With the loss of the LZ-4 the army demanded an immediate replacement, for this purpose the old LZ-3 was taken in hand and enlarged and equipped with more powerful engines. At the same time work began on the new LZ-5

Count Zeppelin had the experience to build a large rigid airship but also realised that the cost of further development was beyond his own personnel resources. Zeppelin turned to his patron the King of Wȕrttemberg, who agreed to organise a state lottery which ultimately raised 200,000 Marks to finance the building of a second airship.

In addition, he again persuaded the Ruhr aluminium magnate Carl Berg to supply the alloy for the framework, and prevailed upon Gottlieb Daimler into providing light engines of suitable power that could be developed for flight.

The floating hanger was refurbished and materials began arriving at the lakeside in early 1905 allowing work to commence, with construction proceeding at a rapid pace.

The new airship, which was completed in December 1905, was of sturdier construction than its predecessor and, whilst in outward appearance and dimensions similar to LZ-1, she was equipped with larger and more effective control surfaces fore and aft. These elevating ‘Aeroplanes’ were to replace the cumbersome sliding weights of the LZ-1, whilst the engine power had been increased to a total of 170 hp.

The LZ-2 was readied for its first flight in November 1905, but as the ship was being towed out of its floating hanger the airship went out of trim causing the bow to dip into the water, which in turn damaged the elevator planes and structure. At the same time, the tow rope attached to the motor boat parted and the LZ-2 began to drift across the lake whilst all efforts to start the engines failed. The motor boat crew chased the ship, secured to tow rope again, returning it to its shed.

After repairs the second flight took place on 17 January 1906, at first all went well with the airship reaching a speed of 24 mph and answering the helm in a satisfactory manner, but once more the forward engine broke down due to a problem with the cooling water and shortly after this the rear engine also failed. All efforts of the crew failed to restart the engines. The LZ-2 drifted on the breeze to be brought down 25 miles way outside the village of Kisslegg.

The damage on landing was not too serious and it was hoped to save the ship. Yet although held by a ground crew of soldiers and villagers later that night, with a wind of increasing force the LZ-2 was smashed into the ground and became a total loss.