Musk thinks that AI is bad for humanity and may spark World War III.
"I think Elon is exactly wrong" about AI, Schmidt said during the "VivaTech" conference in Paris on Friday.
"Musk is concerned about the possible misuse of this technology and I am too but I am more convinced by the overwhelming benefit of AI," tech website CNET quoted Schmidt as saying.
"AI will make people smarter and this will be a net gain," said Schmidt who is currently a board member of Alphabet, Google's parent company.
Earlier, during the same event, Facebook CEO Mark Zuckerberg - who has been in verbal spat with Musk over AI for long - expressed optimism about the possibilities of AI.
"I think that AI is going to unlock a huge amount of positive things, whether that's helping to identify and cure diseases, to help cars drive more safely, to help keep our communities safe," he was quoted as saying.
Musk recently warned that if not regulated or controlled soon, AI will become an "immortal dictator" and there will be no escape for humans.
"At least when there's an evil dictator, that human is going to die. But for an AI there would be no death. It would live forever, and then you'd have an immortal dictator, from which we could never escape," he said in a new documentary titled "Do You Trust This Computer?"
Musk has always been a critic of AI and asked for stiff regulations to curb the technology.
In a recent tweet, Musk said that people should be more concerned with AI than the risk posed by North Korea.
"If you're not concerned about AI safety, you should be. Vastly more risk than North Korea," Musk tweeted.
Musk has also quit the board of OpenAI, a non-profit AI research company he co-founded that aims to promote and develop friendly AI that benefits the humanity.
In a recent public spat with Zuckerberg, Musk said: "I've talked to Mark about this (AI). His understanding of the subject is limited".
Zuckerberg replied: "I think people who are naysayers and try to drum up these doomsday scenarios -- I just, I don't understand it. It's really negative and in some ways I actually think it is pretty irresponsible."