The 21-year-old spent the second half of the 2022/2023 season on loan at the Bees from the Bundesliga side and made 19 appearances but did not score.
Brentford finished in ninth position on the table, only narrowly missing out on European football.
Schade has signed a five-year contract with Thomas Frank's side.
Brentford director of football Phil Giles told the club’s official website: “When Kevin joined us on loan in January, we agreed with Freiburg that the move would become permanent this summer if certain conditions were met, which included Brentford remaining a Premier League team for next season.
“We have all been pleased with Kevin’s contribution so far, both on the pitch and his professionalism off it, so to have him with us now until 2028 is fantastic for the club.
“We all hope both Kevin and Brentford can make further progress from here and look forward to the challenge.”
Schade has won two caps for the Germany national team in friendly games but is still eligible to play for Nigeria, where his father hails from.
