The 63-year-old German has previously led Cameroon and Thailand, as well as a host of club sides in his 31-year managerial career.
He replaces Theodore Whitmore, who stepped down on June 12 after seeing his side lose four consecutive FIFA World Cup qualifying matches.
Schafer, who had a successful playing career in his native Germany, faces a tough task to guide his side to the 2014 finals in Brazil, with the country currently bottom of their qualifying group with two points.
A statement on the Jamaican Football Federation official website welcomed Schafer to the job, adding: "This is certainly another chapter in Jamaican football, a chapter which could bring bountiful rewards.
"Welcome to Jamaica coach."
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