On Monday, the Socialist announced he would lead a centre-left campaign to try and unseat Chancellor Angela Merkel.
The news ends days of speculation about his possible candidacy for the top political job in Germany.
Schulz was once likened by former Italian Prime Minister Silvio Berlusconi to a Nazi German commandant, but is viewed in Germany as the most serious challenger to Merkel in a decade.
Schulz stood down as Parliament President earlier this month and is expected to announce later this week that he plans to also stand down as an MEP with immediate effect.
The 61-year-old, who is widely credited with having raised the image of Parliament during his five-year term as President, is expected to be named leader of the Social Democratic party in March after the incumbent Sigmar Gabriel unexpectedly stood down last week.
Announcing his decision on Monday, Schulz vowed to address "populist divisions" in the country.
He said, "Germany needs a new start that cannot happen with the Christian Democratic Union. We've come to the end of what we can achieve with divided conservatives."
Merkel's 'open door' immigration policy, which has seen nearly a million migrants and refugees enter the country over the past two years, has proved divisive.
In a brief speech, Schulz vowed a "zero tolerance" policy on crime, adding, "I'm liberal, but not stupid."
He also criticised the US election campaign, saying that the "lack of decency" in the debates "shocked [him] deeply."
"It opened up rifts and destroyed much in a country which once stood for freedom and tolerance. That mustn't happen to us in Germany."
In an apparent attack on US President Donald Trump's plans to impose a temporary travel ban on Muslims from certain countries, Schulz also claimed that "Pied Pipers are trying to capitalise on the backs of refugees ... this is shameful and repulsive. "
Schulz dropped out of school without taking his final exams and is a reformed alcoholic. A former bookseller, he was elected an MEP in 1994 and served as President from 2012 to this January.
His decision to run against Merkel and her ruling Christian Democratic Union has surprised many, not least his former MEP colleagues, but a recent poll put both candidates on 41 per cent.
British Socialist Linda McAvan said, "I've worked with Martin for many years. He's someone with strong values and is exactly the kind of leader Germany and Europe need in these difficult times."
Jo Leinen, a German Socialist MEP, welcomed the decision, telling this website, "Schulz is popular but not a populist and is a good choice. It is certainly not a given that Merkel will win another term.
"Martin is a good campaigner. He will explain to the German voters the problems and solutions the EU and Germany face. This is an open race and he has every chance of winning."
German ECR group member Bernd Lucke said, "This has been cleverly arranged by Sigmar Gabriel. The SPD is in a bad state - now the command in the Suicide Squad goes to Martin Schulz and the foreign minister's post, which Schulz had preferred, goes to Gabriel."