Schrader, who was second at the 2013 world championships in Moscow but also missed the 2012 London Olympics due to injury, suffered the latest setback during pole-vault training on Friday.
"Rio is done for me," the 28-year-old told reporters. "For the next year I will not be able to think about sport.
"Tendons and ligaments were torn. Anything that could get damaged in the knee was damaged."
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American Ashton Eaton is the ruling world and Olympic champion with the Rio summer Olympics, the first on the South American continent, to take place between Aug. 5-21.
(Reporting by Karolos Grohmann; editing by Sudipto Ganguly)
