VW used sophisticated software to cheat emissions rules on almost 600,000 U.S. vehicles.
Schmidt traveled to the USA as the scandal was breaking on a mission to lie to U.S. and Californian authorities so Volkswagen could obtain regulatory approvals to sell 2016 model year diesel vehicles in the United States, according to prosecutors.
Prosecutors say Schmidt, a German national, lied to US environmental authorities, lied to investigators and encouraged others at VW to destroy arguments.
As part of his guilty plea, Schmidt admitted to being informed about the emissions cheating scheme, and conspired with other Volkswagen executives to illegally certify the company's 2.0-litre turbo-diesel engine in the States.
But at the sentencing in Detroit judge Sean Cox sided with the prosecution.
"In my opinion, you were a key conspirator, responsible for the cover-up in the United States", Cox said.
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Schmidt apologized in court and broke down while detailing what his family had been through since his arrest in January. Schmidt was also ordered to pay a criminal penalty of $400,000, according to a US Department of Justice (DOJ) press release.
The government said he later misled U.S. investigators and destroyed documents.
Last week, Schmidt's attorneys made a last-minute bid requesting a lighter sentence for Schmidt: 40 months of supervised release and a $100,000 fine.
Federal officials told the court: "The defendant has a leadership role within VW". Both the jail term and the fine were at the top end of sentencing guidelines. "As a effect of that role, he was literally in the room for important decisions during the height of the criminal scheme".
The scandal has cost Volkswagen billions of dollars in fines and settlements.