The Gunners were desperate to sign the 37-year-old stopper as a replacement for Manuel Almunia.
But Fulham first could not agree terms with the Gunners, then could not get a replacement in themselves in time.
Schwarzer is believed to be mulling over a move back to Germany where he has played before with Kaiserslautern.
He is also understood to have several other European clubs keen on his services.