Over the course of the last two seasons, the attacking midfielder made 55 appearances for regional league outfit FC Schalke 04 II, scoring eight goals and chipping in with eight assists.
"Pascal Schmidt is a talented, young player," said Arminia sporting director Samir Arabi. "He'll have enough time here to quietly develop his game and realise his potential."
"I'm really happy to be moving to Arminia Bielefeld," added Schmidt. "I followed the key games last season. There's a really great atmosphere inside the SchücoArena. I'm sure I can develop as a player and help the team along the way."