In 2005 Schumacher's sole win came at the United States Grand Prix. Prior to that race, the Michelin tyres, used by most teams, were found to have significant safety issues. When no compromise between the teams and the FIA could be reached, all but the six drivers using Bridgestone tyres dropped out of the race after the formation lap. However, rule changes for the 2005 and 2006 seasons required tyres to last an entire race, tipping the overall advantage to teams using Michelins over teams such as Ferrari that relied on Bridgestone tyres. The rule changes were partly in an effort to dent Ferrari's dominance and make the series more interesting. Less than half-way through the season, Schumacher said "I don't think I can count myself in this battle any more. It was like trying to fight with a blunted weapon.... If your weapons are weak you don't have a chance." The most notable moment of the season for Schumacher was his battle with Fernando Alonso in San Marino, where he started 13th and finished only 0.2 seconds behind the Spanish driver. Schumacher retired in six of the 19 races. He finished the season in third with 62 points, less than half the points of world champion Alonso.

2006 became the last season of Schumacher's racing career. After three races, Schumacher had 11 points and was already 17 points behind Alonso. He won the following two races, his first wins in 18 months, not including the boycotted 2005 United States Grand Prix. Schumacher was stripped of pole position at the Monaco Grand Prix and started the race at the back of the grid. This was due to him stopping his car and blocking part of the circuit while Alonso was on his qualifying lap; he still managed to work his way up to 5th place on the notoriously cramped Monaco circuit. By the Canadian Grand Prix, the ninth race of the season, he was 25 points behind Alonso, and the three wins that followed helped him reduce his disadvantage to 11. After his victories in Italy (in which Alonso had an engine failure) and China, in which Alonso had tyre problems, Schumacher led in the championship standings for the first time during the season. Although he and Alonso had the same point total, Schumacher was in front because he had won more races.

The Japanese Grand Prix was led by Schumacher with only 16 laps to go, when, for the first time since the 2000 French Grand Prix, Schumacher's car suffered engine failure. Alonso won the race, which gave him a 10 point championship lead. With only one race left in the season, Schumacher could only win the championship if he won the season finale and Alonso scored no points.

Before the Brazilian Grand Prix, the last race of his career, Schumacher conceded the title to Alonso. In pre-race ceremonies, football legend Pelé presented a trophy to Schumacher for his years of dedication to Formula One. During the race's qualifying session, Schumacher had the best time of all drivers through the first two sessions; but a fuel pressure problem prevented him from completing a single lap during the third session, forcing him to start the race in tenth position. Early in the race Schumacher moved up to sixth place. However, in overtaking Alonso's teammate, Giancarlo Fisichella, Schumacher experienced a tyre puncture caused by the front wing of Fisichella's car. Schumacher pitted and consequently fell to 19th place, 70 seconds behind teammate and race leader Felipe Massa. Schumacher recovered and overtook both Fisichella and Räikkönen to secure fourth place. His performance was classified in the press as "heroic", an "utterly breath-taking drive", and a "performance that ... sums up his career".

Schumacher returned to an F1 cockpit for the first time since retirement on 13th and 14th of November 2007, in Barcelona. The reason for this test was to help Ferrari prepare for 2008 season, the first without Traction Control and using Standard ECU (Electronic Control Unit). Upon return, Schumacher contributed fastest lap times, and it is confirmed that he will continue to test for Ferrari in Jerez. Testing is scheduled to begin on December 4th, marked with the return of slick tyres for the first time since the ban in 1998.