Etxebarria Benat's first-half strike dealt a heavy blow to Real Madrid's defence of their Primera Division title as Real Betis claimed a famous 1-0 win.
Jose Mourinho's men dominated throughout yet they could not find a way through Betis' defence and goalkeeper Adrian in particular after they had fallen behind to Benat's first-half strike from 25 yards.
The defeat was Madrid's first in nine league matches and they remain eight points adrift of leaders Barcelona, who could stretch their lead even further at sixth-placed Levante on Sunday.
Betis, meanwhile, made significant amends for their 5-1 humiliation at the hands of local rivals Sevilla last week and they moved up to fifth.
There were no signs of an upset in the early stages as Madrid, who were on the right side of a 5-1 result last week against Athletic Bilbao, settled nicely, with Cristiano Ronaldo's left-foot strike palmed away by Betis goalkeeper Adrian.
Germany international Sami Khedira fired wide from the edge of the area but the visitors were stunned when Benat put Betis ahead against the run of play with their first foray on goal.
The midfielder collected the ball 30 yards from goal and dribbled past Khedira before drilling low into the left corner.
And Mourinho's men could have been two down had it not been for a superb save from Iker Casillas, who tipped over Ruben Castro's strike from the left side of the penalty area.
Yet it was Madrid who continued to control the tempo of proceedings and Angel Di Maria spurned two decent chances to level in quick succession.
First, the Argentinian's effort from close range was tipped over by Adrian and the winger then latched onto Karim Benzema's ball into the area before lifting the ball onto the roof of the net.
Benzema thought he had grabbed the equaliser after converting Xabi Alonso's free-kick but was ruled offside while Di Maria beat the offside to go clean through on goal but flashed his effort wide from a narrow angle.
The visitors continued to lay siege to Betis' goal after the break and Kaka's shot from distance forced a spectacular save from Adrian and only Jose Antonio Dorado's last-gasp clearance denied Benzema from converting Ronaldo's low cross into the area.
Ronaldo, who had only scored once in his last five appearances before tonight, set out to end his mini-drought but his powerful free-kick was tipped over by Adrian, who then pushed Benzema's close-range header wide.
Madrid continued to push numbers forward as they sought to avoid their third league defeat on the road this season but it was all in vain as the hosts valiantly held on to secure a valuable three points.