The German Socialist MEP has also warned of "the very hardest of Brexits."
His hardline comments come in a letter to European Council President Donald Tusk, as 27 heads of state or government converged on Brussels for the one-day gathering.
Schulz, in the letter, warns that if the Parliament's "secondary role" is confirmed, it cannot exclude deciding to "draw up its own detailed arrangements governing its interaction" with the EU negotiator, Michel Barnier, and the UK government.
In the letter, Schulz, who steps down as President next month, urges Tusk to "fully involve" Parliament in the Brexit negotiations and to "modify" the draft conclusions proposed to the summit accordingly.
Schulz reminds Tusk that it could not be excluded that MEPs could reject any outcome of the negotiations at the end, which would "result not in the status quo (as would be the case for any other international agreement) but the EU treaties simply ceasing to apply to the UK at the end of the two year period.
"This would be the very hardest of Brexits and to the detriment of everybody", he adds. "The European Parliament is, besides the House of Commons, the only Parliament which has the power to ratify or not the agreement."
Schulz, who has previously voiced dismay at the UK leaving the EU, writes, "These are perhaps the most important negotiations the EU will ever have to undertake. They will affect quite possibly whether the EU will continue to exist in its present form."
Schulz also reminded Tusk that the Parliament was fully involved in the negotiations of the Lisbon Treaty 10 years ago.
The Conference of Presidents, the influential body comprising Schulz and political groups' leaders, "strongly believe that the EU institutions and the 27 member states must remain strongly united during the negotiations" and "the Parliament is a very willing partner to contribute to this united front", he stresses in the letter.
On Wednesday, in his last speech marking the end of his term, he focused on the danger of rising nationalism across Europe.
"I have fought against this hatred with all my strength and I will continue to do so in the future, even though from a different position. Because it is and will always remain our duty to fight against these destructive forces, irrespective of the post we hold", Schulz stated.
UK Prime Minister Theresa May will attend the summit but is not expected to participate in a dinner with other EU leaders on Thursday evening.
Once May departs, leaders from the remaining 27 member states are expected to hammer out a united stand for the negotiations. Talks are scheduled to begin after the UK triggers article 50, formally launching Brexit proceedings, by 31 March 2017.
The summit coincides with fresh warnings from senior diplomats about Brexit.
First, the UK's most senior diplomat in Brussels privately told the government that a final trade deal with the rest of the EU might not be done for 10 years, and might ultimately fail.
Ivan Rogers, the British ambassador to the EU, warned ministers that the European consensus was that a trade deal might not be concluded until the early to mid-2020s at the earliest - possibly a decade after the referendum.
Rogers, who conducted David Cameron's pre-referendum renegotiation, warned that approving an agreement in every country's domestic parliament - the process of ratification - might prove impossible.
His comments were followed by a stern message to the incoming Donald Trump administration from the US' outgoing envoy in Brussels, Ambassador Anthony Gardner, who, on Wednesday warned against the UK leaving the single market, saying that US businesses would suffer.
Gardner said: "To send the message to London 'break free' 'take back control' 'forget the EU,' it would be an enormous mistake for US business, both for services and manufacturing businesses."