The 37-year-old shot-stopper has been the subject of a long transfer saga this summer, and the Australian was widely tipped to sign for the Gunners after strong interest from Arsene Wenger.
But Sky Sports News now report that Fulham will not let the veteran keeper leave Craven Cottage.
Fulham have rejected two bids for the experienced keeper, the latter a £4m offer, and Schwarzer was keen to make the switch to the Emirates Stadium.