Former Sevilla boss Ramos has signed a six-month contract.
He joins the club after being sacked as manager of Tottenham in October, following the north London club's worst start to a season.
Schuster departs having overseen a run of indifferent form for the defending Spanish champions with Madrid currently in fifth place in the Primera Liga, nine points behind arch-rivals Barcelona.
They were also knocked out of the Copa del Rey by minnows Real Union, but the final straw was Sunday's 4-3 home defeat by fellow title challengers Sevilla after which Schuster said it would be "impossible" for Real to win at Barcelona next Saturday.
The Madrid board had previously given Schuster, 49, several votes of confidence, but finally lost patience with the German.
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