Things had started well for Pep Guardiola's men when David Silva pounced on a defensive error before laying on for Sergio Aguero to tap home from close-range.
But the hosts got themselves back on level terms as half-time approached when Nabil Bentaleb slotted home from the penalty spot after Nicolas Otamendi had handled inside the area.
There was still enough time for former Spurs man Bentaleb to then put Schalke ahead before the break, when he fired home another spot kick after Salif Sane was brought down inside the area by Fernandinho.
It was quickly becoming a night to forget for City when Otamendi received his marching orders as the 70-minute mark approached, but Sane grabbed an equaliser with five to play with a sumptuous free-kick.
CITY+ subscribers can watch this memorable encounter in full in the video above.