Mahrez put in a transfer request to try to force through a transfer to the Etihad Stadium but after City refused to meet Leicester's valuation, the Algerian international spent a week away from the training ground.
The playmaker has since returned and has travelled with the Foxes squad for the game at Man City this weekend, and although there have been reports suggesting that Schmeichel and his teammates have been unhappy with Mahrez's conduct, the Dane has hinted that they are accepting of the midfielder's situation.
The 31-year-old told Sky Sports News: "Anyone who knows Riyad will know the ability that he has got, and he'll be bitterly disappointed not to have been able to go to a club where he could potentially win four trophies this year, and I think everybody gets and respects that.
"His reaction to that; that's on him, that's up to him what he chooses to do. For us, we've got a massive game to look forward to now, we have to get back on track, get a win soon, so for us that's got to be our focus.
"I understand that you're disappointed, there's no question. I think everyone knows Riyad has the ability to play at the highest level, so I understand his disappointment, definitely."
In Mahrez's absence, Leicester failed to win either of their Premier League fixtures with Everton and Swansea City.