Cheap miniature versions of the unmanned aircraft used by the military could fall into the wrong hands, he told the UK's Guardian newspaper.
Quarrelling neighbours, he suggested, might end up buzzing each other with private surveillance drones.
He also warned of the risk of terrorists using the new technology.
Mr Schmidt is believed to have close relations with US President Barack Obama, whom he advises on matters of science and technology.
"You're having a dispute with your neighbour," he told The Guardian in an interview printed on Saturday.
"How would you feel if your neighbour went over and bought a commercial observation drone that they can launch from their backyard. It just flies over your house all day. How would you feel about it?"
Warning of mini-drones' potential as a terrorist weapon, he said: "I'm not going to pass judgment on whether armies should exist, but I would prefer to not spread and democratise the ability to fight war to every single human being."
"It's got to be regulated... It's one thing for governments, who have some legitimacy in what they're doing, but have other people doing it... it's not going to happen."
Small drones, such as flying cameras, are already available worldwide, and non-military surveillance were recently introduced to track poachers in the remote Indian state of Assam.
The US and Israel have led the way in recent years in using drones as weapons of war as well as for surveillance.
America's Federal Aviation Administration is currently exploring how commercial drones, or unmanned aircraft systems, can be safely introduced into US airspace.

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The 18-year-old from Essex broke the tibia and fibula in his left leg after landing on a concrete floor while vaulting in November.
Less than a month before his injury, Bevan was part of the first British team to claim a World Championships medal, when they won silver in Glasgow.
"It hurt my head and heart knowing what I had done," he told BBC Look East.
"My coach tried to jump in front of me to stop me from seeing what had happened - but I had already seen it."
Bevan won a series of junior titles before he claimed bronze in the pommel horse at the 2015 European Games in Baku.
He had hoped to continue that progress at the Olympics in Brazil but, with only 247 days until the Games, he knows it will be a challenge to be ready in time.
"The most important thing for me is getting back to full fitness so I can carry on my gymnastics career," he said.
"I don't think the Olympic Games is fully out of reach, it is going to be tough, but there is still a small chance I can push for a place in that team."

Ardit Ferizi from Kosovo pleaded guilty to charges of providing material support to America's enemies, at a court hearing in Virginia.
The computer hacker shared the personal data of more than 1,000 American military and government personnel.
The jail term imposed by the US court is the maximum sentence for his crime.
Ferizi, who was known online as Th3Dir3ctorY, was arrested in Malaysia in October 2015 and extradited to the US in January this year.
Speaking after the verdict, US Assistant Attorney General John Carlin described the attack as carrying a very real and dangerous threat to US national security.
In a statement in June, the US Department of Justice said the case was the first of its kind and represented "the nexus of the terror and cyber-threats".
It said Ferizi handed the list to IS knowing it could incite the group to attack the individuals named in it.
Information about the names, email addresses, passwords, locations and phone numbers for about 1,350 military personnel and federal staff came from several servers that Ferizi hacked into.
He targeted both machines in US government offices and corporate computers.
After he has served his sentence, he will be deported to Kosovo and barred from re-entering the US.
The influential head of Google, Eric Schmidt, has called for civilian drone technology to be regulated, warning about privacy and security concerns.
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Gymnast Brinn Bevan believes he still has a "small chance" of competing in the Olympic Games in Rio next summer.
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A 21-year-old has been sentenced to 20 years in prison in the US after passing details on American military personnel to so-called Islamic State (IS).