The scandal started in September 2015 when the US Environmental Protection Agency (EPA) issued a violation notice to the German automaker for not complying with the US Clean Air Act.
Schmidt, who led VW’s US regulatory compliance office at the time, pleaded guilty to charges of fraud and the Detroit federal court sentenced him to seven years in jail and a $400,000 fine.
Prosecutors dropped other charges against him which carried a maximum prison sentence of 20 years in exchange for his guilty plea.
Schmidt will be deported back to Germany after the completion of his prison sentence. He is the second and most senior VW employee to plead guilty in the charges.
In August, the same court sentenced James Liang, a VW engineer who had cooperated with investigating authorities, to 40 months and a $200,000 fine for his role in the scandal. Six VW or Audi executives remain at large.
VW had equipped some 11 million cars worldwide with defeat devices in 2015, which allowed the vehicles to deceive emissions tests but emit up to 40 times the permissible levels of harmful nitrogen oxide during actual driving.
About 600,000 vehicles equipped with the cheat device had entered the US.
In total, VW agreed to pay $4.3 billion in civil and criminal fines and plead guilty to settle all charges brought up against the automaker in the US.
A study published in May found that air pollution caused by excess nitrogen oxide from improperly configured diesel vehicles in 2015 had contributed to about 38,000 premature deaths worldwide.
In Germany and elsewhere, the auto giant continues to face legal challenges. The scandal has reportedly cost VW as much as $30 billion in fines, settlements and remediation so far.