The Peruvian had been tipped to leave the Royal Blues earlier in the season, but he has now committed himself to the club after signing on for a further four years
The former PSV attacker's terms were set to expire at the end of the season, and with no proposal forthcoming, it appeared his time in Gelsenkirchen was coming to an end, with sides from around Europe reportedly monitoring his availability.
The arrival of Hoffenheim winger Chinedu Obasi also seemed to cast further doubt over the 27-year-old's future at the Veltins Arena, but the Royal Blues have now confirmed that Farfan has agreed to stay for four more years.
It will come as a welcome surprise to the Bundesliga outfit, as their coach Huub Stevens previously admitted he was expecting Farfan to join Raul in leaving the club at the end of the 2011-12 campaign.
Farfan has scored four goals in 21 league appearances for Schalke, and also has eight assists, despite suffering a ligament tear midway through the season.