Was there a German embassy open in 1941 Lisbon?

Another potential source of information could be the German Club in Lisbon, founded in 1870; the activity of the club was suspended between 1944 and 1955, but perhaps you can get additional information there.

I have one name for you: Duško Popov, AKA "Tricycle", the codename given to him by MI6.

I am a very well read WWII era European history buff, and this is partly because both of my grandfathers served in the US military during the war, and by chance, both were involved in very unique, significant, and incredible events which effected them both mentally and physically the rest of their lives (this isn't about them obviously, but for example, my maternal grandfather was on the first landing craft ashore in Hiroshima after the bomb was dropped, one of the first men to set foot on the beach, and was exposed to radiation levels that eventually killed him.)

Anyway, Dusko was a double agent for MI6 and the Abwehr, and routinely flew from London to Lisbon to pass material to his handler, Von Karston? (I believe? This is all from memory, you can easily research this and get correct spellings etc, obviously). I believe looking into Popov will lead you down a treasure trove of a trail of information on the Nazis and their business and goings on in Lisbon, as Popov was literally one of the most important spies for the Allies, because of this, there should be a lot of information regarding him which you can work off of to follow up on clues gleaned from his story.

I really think this could be the way to crack open leads you can build on. Good luck, Lisbon was a fascinating place of lies, subterfuge, and open secrets as everyone knew it was anything but neutral and allowed the Nazis to set up in Portugal and get away with just about anything they wanted. Good luck!

You might like to read about the history of Juan Pujol García, notorious for being the only spy decorated by both the British & Nazi governments. The Wikipedia page lacks the details, along with many of the fabulous fictions he led the Germans to believe, but many of the biographies do mention him meeting with Nazi agents both in and outside of the embassy in Lisbon.

While looking for something else, I found this, which confirms that an Embassy (called Legation) did exist.

Allied Relations and Negotiations With Portugal - U.S. Department of State (.gov)

• page 12 of PDF:

Portuguese officials seized German Government buildings and their contents throughout Portugal and its colonies and, by early June, delivered them to the Joint Allied Committee on German Affairs in Portugal, established to oversee their liquidation. Included in these seized assets were 5,000 unidentified gold coins found at the German Legation in Lisbon in May 1945.

• Source: Despatch 220 from Lisbon, June 8, 1948, RG 59, Decimal Files 1945-49, 800.515/6-848. The Joint Allied Committee was composed of one representative each from the three Allied Embassies in Lisbon.

What Germany might have been roaming the Cafés is still a bit of a large topic:

Don't forget Salazar, a culturally authoritarian dictator, during and before WW2, was very much on the side of Franco, and Salazar declared Portugal neutral in WW2. He had no problem with anti-democratic Germany (Salazar took issue with the anti-catholizism of the Nazis; but, well, taking issue on a philosophical level…).

Portugal was an important trade partner for Germany, especially in terms of supplying tungsten, which was important for armor-penetrating munition, as well as rubber, necessary for anything that goes somewhere without a horse. So, there's bound to be quite a few Germans in Lisbon, Porto and industrial cities all over Portugal 1941. Mind that this trade takes the form of mining concessions; i.e., it was partially German companies that dug on Portuguese soil. It's well-documented that this upset Great Britain, but they applied extensive pressure no earlier than 1943, and only in 1944 Portugal severed diplomatic ties with Germany¹.

So, in other words, there were German salesmen, captains, miners, engineers, cooks, accountants, and their families in Lisbon, probably, at least coming through. Being one of the few European countries that traded with both the Allies and the axis forces, it's not unlikely there's been also a few grey to black market vendors for German goods there (say, machinery and replacement parts for German machinery that might have demand in GB but no legal way to import them); but that's now strictly speculation.

Other than that, Germans just tended to live quite everywhere; Germany didn't establish trade with Portugal just to wage WW2, both being seafaring nations, there's bound to be some local settlements, German gentlemen's clubs, plain Kneipen (pubs) where you'd read a German newspaper… The world war certainly posed a problem for families who just happened to live in Portugal and happened to have ties to Germany. It's pretty likely that Estado Novo wasn't a great context to have a German-culture club – but then again, Salazar's idea of a state was ultra-conservative, and nationalist, and if you could arrange with that, it might not have been an existential threat.

¹ Wheeler, Douglas L. “The Price of Neutrality: Portugal, the Wolfram Question, and World War II.” Luso-Brazilian Review, vol. 23, no. 2, 1986, pp. 97–111. JSTOR, http://www.jstor.org/stable/3513243. Accessed 27 Aug. 2023.

There was a functioning embassy of Germany in Lisbon for almost all of the second world war, until 6 May 1945. But there was no ambassador for a period in 1944–45.

Oswald von Hoyningen-Huene was the Ambassador of Germany to Portugal from 1934 to 1944. He was recalled to Germany for consultation after the 20 July plot, and the first nominated replacement was rejected by the Portuguese government. [See Ch.27 of N. Lochery, Lisbon: War in the Shadows of the City of Light, 1939–1945. PublicAffairs, 2011. ISBN: 978-1-58648-879-6]

The German second choice, Gustav von Halem, arrived in Lisbon on 13 March 1945, but his credentials were only recognized by the Portuguese foreign ministry 12 days before the end of the war. The embassy building was damaged by fire on 25 April and repairs were begun. At 18:30 on 6 May 1945, von Halem was summoned to the Portuguese foreign ministry and informed that since there was no longer a government in Berlin, diplomatic relations between Portugal and Germany were terminated, and the embassy was closed. [See Carlos Guerreiro, "II Guerra Mundial. Nazis em Lisboa nos dias do fim" ("2nd World War. Nazis in Lisbon in the final days"), RTP, 15 May 2023]. (Credit to @Rodrigo de Azevedo for locating this article.)