Second-half goals from Yevhen Konoplyanka and Naldo gave Schalke victory in Sunday's Revierderby in Gelsenkirchen.
The defeat came at an additional cost for Dortmund, who saw star striker Michy Batshuayi taken off the field on a stretcher late on.
Batshuayi's injury, which came after both goals, was the result of a heavy challenge by former Tottenham midfielder-cum-defender Benjamin Stambouli.
Domenico Tedesco's side were well worth their victory which saw them move four points clear of rivals Borussia Dortmund in the Bundesliga.