However sports director Horst Heldt said Holtby, who has an English father and who had been linked with a move to the Premier League, would not leave during the winter transfer window when the club would receive a transfer fee.
His current deal runs out in June.
"We had wished that Lewis could see a future here beyond this season. But we respect his decision," he said.
"We are certain that he will give everything for the club's sporting success up until the last match day of the season."
The 22-year-old, who has won three caps for Germany, joined Schalke in 2009 and has had loan spells at VfL Bochum and Mainz 05 until 2011.