The Serbian international is under contract with the English Premier League champions until June 2017, but die Knappen will have an option to make the loan move permanent at the end of the current campaign.
Lack of playing time
Nastasic joined City from Serie A outfit ACF Fiorentina in 2012 and made 34 league appearances for the club in his first two seasons in Manchester, but he has only featured once for Manuel Pellegrini's side this season - in the FA Community Shield against Arsenal FC back in August.
"For us he's the complete player," said Schalke sporting director Horst Heldt. "He's achieved a lot for a player of his age in Italy and in his first year at Manchester City. He's good in the tackle and comfortable playing the ball out from the back. He'll help give us that little bit more stability in defence that we've been looking for."
The left-footed centre-back made his international debut in February 2012 and has since won a further 14 caps for the Serbian national team. Schalke, currently in Qatar on an 11-day winter training camp, are currently fifth in the Bundesliga table.