Goals from Joe Dodoo and Tom Hopper made it three victories on the bounce for the Under-21s, having recently beaten Manchester City and Manchester United in the Barclays U21 Premier League.
Danny Simpson played 90 minutes while Academy products Ben Chilwell, Hamza Choudhury and Matty Miles all played a part in the win.
Tom Lawrence carved out the first effort of the match, curling a shot from the edge of the area that flew just over Bernd Schipmann’s bar on three minutes.
Callum Elder prevented Lance Mickels from putting the visitors in front with a superb block just moments later, while Maurice Müller then turned his effort over Adam Smith’s goal from 16 yards.
And Maurice Müller showed his threat again on 16 minutes – the central-midfielder hitting one from distance, but not troubling the City No.1.
A tight opening 20 minutes saw chances come few and far between. Moritz Fritz rose well on 23 minutes, but the defender couldn’t direct his header on target.
But City pressed well, and when Jack Barmby picked up the ball in midfield and played it through to Dodoo, the latter showed his goalscoring instinct, and slotted in to put his side into the lead with 27 minutes gone.
The young Foxes had Smith to thank for maintaining their lead just after the half-hour mark as the shot-stopper first turned away Dren Hodja’s deflected shot before collecting the rebound from Mickels.
And Smith again denied Schalke five minutes before the break – Pascal Itter flew down the right wing and swung a ball in for Hodja, who headed at goal but couldn’t beat the young ‘keeper – City a goal to the good at half-time.
Schalke started the second half well and Donis Avdijaj looked certain to score after latching onto a through-ball, but a clean last-ditch challenge from Elder prevented the No.7 from getting his shot off.
Maurice Müller then came agonisingly close to equalising for the German outfit – Lawrence blocking the midfielder’s effort from deep inside the City box.
But Leicester doubled their lead on 58 minutes when captain Hopper leapt above the opposition defence to head in Jak McCourt’s free kick past Schipmann.
Schalke looked for a way back into the game, and thought they had found one when Jonas Nietfeld found space in the area – the forward hitting the inside of the post on 63 minutes.
A flurry of corners for the visitors then saw Maurice Müller head tamely at Smith, while Hopper broke well at the other end but fired straight at the goalkeeper.
A final looping 45-yard effort from captain Axel Borgmann crept just over the crossbar late on, but Steve Beaglehole’s men stood strong in the dying stages and claimed a hard-fought win against tough opposition.
The youngsters host Portuguese side Benfica in their next Premier League International Cup fixture at King Power Stadium Monday 24 November before facing Leeds United in the U21 Premier League Cup.
CITY: Smith, Simpson, Chilwell (Choudhury 80), McCourt (Miles 88), Kennedy, Elder, Panayiotou (Dawson 80), Lawrence, Hopper (c), Barmby, Dodoo
SUBS NOT USED: Maddison, Scott
GOALS: Dodoo 27, Hopper 58
SCHALKE: Schipmann, Itter, Borgmann (c), Wolff, Fritz, Müller (Talarski 65), Avdijaj, Müller, Nietfeld, Hodja (Malsam 82), Mickels (Pick 65)
SUBS NOT USED: Meier, Schumacher, Böcer
REFEREE: Ollie Yates