The two sides come together for the second successive season in the competition as the knockout stages get underway, with Schalke keen to avoid a repeat of last season's 9-2 aggregate defeat.
Schalke come into the game having seen a five-game unbeaten run in the Bundesliga come to an end against Eintracht Frankfurt on Saturday, but Di Matteo is confident that will not affect their confidence at the Veltins Arena.
"We're playing the title holders, but our goal going into the match is still to come away with a win," he said.
"We want to exploit the few weaknesses in Real Madrid's game
"Of course they are the favourites. They are the holders, but still, we are out to win.
"It will be a test to see how far we've come in the last weeks and months."
The former Chelsea head coach – who won the Champions League with the English club in 2012 – is understandably wary of Cristiano Ronaldo, acknowledging the tough task Schalke face in stopping the Portugal international.
Di Matteo added: "Cristiano Ronaldo is a phenomenal player who is always capable of deciding a match on his own.
"Even is his form is not as stellar as usual, he can still decide a game on his own."
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