The experienced coach has left Bremen after over 40 years at the club in various positions as both parties felt the time is right to go their separate ways
Schaaf sat down with the Bremen board of directors on Tuesday after securing Bundesliga status for another season at the weekend and they reached the conclusion that it was in both parties' best interest to part ways.
The 52-year-old had been in charge of Werder ever since replacing Felix Magath in May 1999 after previously serving the club as assistant coach, youth coach and youth player, altogether spanning a 41-year period at the Bundesliga side.
"I have had an extraordinary time at this club with a lot of positive experiences and big successes," Schaaf commented on his departure.
"I would like to thank everybody who has supported me throughout the years and wish Bremen all the best for the future."
Schaaf guided Bremen to one Bundesliga title, three DFB-Pokals and one Uefa Cup final during his time as head coach.
Assistant coach Wolfgang Rolff and Matthias Honerbach will lead Werder during their last Bundesliga game of the season against Nurnberg. They currently sit 14th in the league table.