Spaniard Nadal had not dropped a single set going into the fourth-round clash, but was made to wait for his victory over a stubborn Schwartzman.
Top seed Nadal started brightly in the first set, but was caught 0-40 down on his own serve by Schwartzman before making it 4-3 and going on to take the first set.
The early warning signs were there for the Spaniard, and Schwartzman showed his steel in an 80-minute second set. The Argentine broke back to force a tie-break - only the second faced by Nadal in the tournament - before powering through and levelling up.
Nadal battled back in the third set, taking a 4-1 lead before restoring his overall advantage with an ace. Schwartzman had five chances for break point in the fourth set, but was unable to convert any of them.
The Argentine was made to pay for his mistakes too, as Nadal - seeking a 10th Australian Open quarter-final spot - made it 6-3 to ensure his progression in the tournament.
The world number one will now face Marin Cilic in the last eight.