The 39-year-old had been in intense negotiations with the Royal Blues to replace Andreas Müller, who was sacked recently, but Kahn said he turned down the role on Friday.
Instead Kahn, who retired from professional football last May having led Bayern Munich to last season's German League and Cup double, will concentrate on his new role as ambassador for the DFB's (German Football Federation) Sepp Herberger Foundation as well as scouting work in Asia.
"The role with a top club like Schalke clashes with my activities in Asia in the forthcoming months and has come six or eight months too early," said Kahn.
But Kahn, who led Germany to the 2002 World Cup final defeat by Brazil, has said he may be interested in a team manager role with a Bundesliga club in the future.
The former goalkeeper is now a pundit for TV channel ZDF and will travel to China next month on a scouting assignment for German giants Bayern.
And having spent 14 years at Bayern Munich, Kahn looks like a good bet to replace veteran Uli Hoeness who is standing down as team manager at the end of the season.
Kahn side-stepped the question when he was asked about a future role at Bayern and simply said: "I don't want to put myself under any pressure at all."
The decision not to join Schalke comes as the club are going through turbulent times after they announced they had parted company with their Dutch coach Fred Rutten on Thursday. The club are eighth in the table and have been blighted by erratic form this season.