Schmitt went just far enough on his final leap to see Germany win gold in the K120 team ski jumping event by the narrowest ever margin in Winter Games' history.
Ahead after the first round of jumps, the Germans finished with 974.1 points to hold off the strong last-round challenge from Finland by just 0.1 of a point.
Slovenia grabbed the bronze with 946.3 points.
Schmitt, the second-to-last jumper in the field, went 123.5 meters on his second jump of the final round, but had to wait what must have seemed an eternity to see his marks from the judges.
Squatting on his skis in the stopping area, Schmitt covered his eyes before seeing that his points - 121.3 - were just enough to give Germany the gold.
"It's terrible. It was very near. The
scoreboard was empty. So close. It's just awful"
Finnish ski jumper Risto Jussilainen
It was a moment of joy and relief for Hannawald who, despite being one of the favourites, missed out on gold in both the individual events in Salt Lake City.
He was joined by fellow team-mates Stephan Hocke and Michael Uhrmann as they mobbed Schmitt and bundled him into the snow in celebration of their achievement.
"This is an incredible result, totally unforseeable," said a jubilant Hocke,
"I can imagine how the Finns feel," he added.
That was little consolation to Finland's Risto Jussilainen, who like the Germans, had to endure the agonising moments before Schmitt's marks were posted.
"It's terrible," he said. "It was very near. The scoreboard was empty. So close. It's just awful."
Swiss sensation Simon Ammann, who won the high and normal hill individual events at Salt Lake City and was hoping for a hat-trick of golds, missed out on a medal altogether.
A lack of strength in the Swiss team saw them end back in seventh place.