Schmidt, 52, took over in September 2007 when they were in the fourth tier, and in 2023 surpassed the previous record of 16 years for the longest-serving pro coach in Germany.
"It was truly impressive to see how much effort the club put into securing another contract extension with me," Schmidt said in a statement.
"However, in recent weeks, I have come to the conclusion that it is time to make a decision. After nearly 20 years as head coach at FCH, I simply want to take a break this summer.
"One thing is certain: together, we at FCH have written a unique story in German professional football over many years but the final chapter has yet to be concluded," he added.
Schmidt led the club into the Bundesliga in 2023 and to a Europa Conference League appearance a year later.
Heidenheim, relegated last season, are currently sixth in the second-tier standings.