A double from Vinicius Jr and a Marco Asensio goal downed a lifeless Liverpool.
The Reds' incredibly poor start saw them go in at the break two goals to the good from the Brazilian and the 25-year-old Spaniard.
Toni Kroos' tremendous forward pass set the former through and he fired beyond Alisson before Asensio pounced on a Trent Alexander-Arnold mistake.
An early second-half resurgence from Jurgen Klopp's side offered a glimmer of hope as Mohamed Salah reacted to Diogo Jota's miscued shot.
However, as the visitors grew into the game, the highly-rated forward for Los Blancos got his second catching Liverpool off guard.
The tie isn't entirely over but the Premier League champions were made to pay for a terrible 75 minutes.
A first half to forget
It was a very nervy start for Liverpool, taking too long testing the water with the hosts dominating the possession and looking more dangerous at that.
Ferland Mendy broke through and clipped to an unmarked Vinicius Jr at the near post, but the Brazilian headed wide.
Shortly before the half-hour mark, Liverpool were caught out as Toni Kroos set Vinicius on his way, he took one touch and fired beyond Alisson.
Los Blancos continued their onslaught despite having the lead, the Reds almost cowering over the might and firepower Zinedine Zidane's squad has.
The opening goalscorer found space and got his shot off only for his strike to be deflected wide off Nat Phillips.
It went from bad to worse for Liverpool as Asensio pounced on Trent Alexander-Arnold's misplaced pass back.
Real Madrid started strong, forcing Liverpool back with not much time to play a pass.
The tentative start continued with misplaced passes and half clearances.
27: No more than Real Madrid deserved. Awful from Liverpool, allowing Kroos that much space.
36: More errors. Absolutely awful from Liverpool and Madrid made them pay.
Ste's first half thoughts: Struggling to put into words. By far one of the worst Liverpool displays under Jurgen Klopp. Real Madrid ran riot and they could've been three or four to the good by the time the half-time whistle was blown.
Made to pay
Five minutes after the restart Liverpool pulled one back and got a crucial away goal. Diogo Jota's miscued shot fell to Salah who fired through Thibaut Courtois.
Moments later, Alexander-Arnold superbly found Jota who couldn't direct his header on target.
Liverpool were enjoying the better of the opportunities and came agonisingly close only for Ferland Mendy to make a goal-saving tackle on Sadio Mane.
As the Reds were beginning to gain a foothold, Vinicius delivered the dagger blow, despite Alisson's best efforts. But the 20-year-old's effort was too powerful for his fellow countryman.
51: Cometh the man cometh the hour. Mohamed Salah.
Allowing them to have too much space in and around the penalty area.
A lot better from Liverpool, there was an urgency in their attacks and finally conviction on their passing.
62: Cut-open from our own corner, Trent Alexander-Arnold saving a certain goal. From the resulting throw-in they restored their two-goal lead.
It was all too easy for Madrid in the end, stringing multiple passes with no pressure from Liverpool.
LFC Transfer Room Verdict
There's something about supporting Liverpool, on top of the world on a Saturday then for it to come crashing down just some 72 hours later.
It's inexcusable from Liverpool, they tested the water for 45 minutes and then had to chase the game for the rest of the match.
Across the pitch, there were a number of poor performers. Rings or shall we say ships were sailed around the lighthouse, Fabinho. Sadio Mane going to the ground looking for a foul at any given opportunity.
In what was a great opportunity for Liverpool to assert European dominance they fizzled out like the last of a birthday balloon which I, like many other fans feel after that 90 minutes, deflated.
Real Madrid v Liverpool - Match Facts:
Real Madrid: Courtois; Lucas Vazquez, Eder Militao, Nacho, Mendy; Modric, Casemiro, Kroos; Asensio, Benzema, Vinicius Jr.
Liverpool: Alisson, Alexander-Arnold, Phillips, Kabak, Robertson, Keita, Fabinho, Wijnaldum, Salah, Jota, Mane.
Goals: 27', 65' Vinicius, 37' Asensio; 51' Salah
Bookings: 39' Mane, 49' Vasquez, 56' Thiago, 83' Alexander-Arnold
Subs: 70' Valverde (on for Asensio), 84' Rodrygo (on for Vinicius); 41' Thiago (on for Keita), 81' Shaqiri & Firmino (on for Kabak & Jota)