Fresh from their Clasico beating by Barcelona, Carlo Ancelotti's men still held the upper hand in the title race ahead of this game.
But another loss, coupled with wins elsewhere for Barca and Atletico Madrid, means they are now three points off the pace with their destiny out of their hands.
All appeared to be well when Cristiano Ronaldo put them ahead, but a host of missed chances and a Carlos Bacca brace condemned them to defeat.
The night ended on a tense note too as Ronaldo openly complained at Gareth Bale taking an injury-time free-kick ahead of him and putting it into the stands.
As a result of all that, it could end up being a significant night in Real's season and if, they do miss out on the title, will no doubt reflect on it with significant regret.
The chances started to present themselves with just three minutes gone, as Bale shot over the bar and then Karim Benzema had an effort touched behind.
The French striker then headed wide when he should have hit the target, but it did not seem to matter when Ronaldo's 14th-minute 20-yard free-kick hit the wall and went in, catching Antonio Beto cold.
Sevilla quickly replied, though, with Bacca racing through on to Jose Antonio Reyes' pass and finishing beyond the advancing Diego Lopez from close to the penalty spot.
Real returned to the front foot in response and Ronaldo had a free-kick saved and saw another piledriver tipped over.
The Portugal captain then went even closer when his rising effort was touched onto the post and dropped down onto the line, stopping almost entirely still and allowing the Sevilla defence to get back and clear.
Bale also went close, cutting in on the right before dragging a shot at Beto from six yards, before the break cut some of Madrid's energy.
They did not look as rampant after the rest and, despite lots of possession, could not really get at Beto.
Their first-half misses were really come back to haunt them and, with 18 minutes left, Sevilla delivered the killer blow.
Rakitic watched a high ball drop to him close to halfway and, with his back to goal, flicked it on the volley over Pepe's head. He raced clear of his marker in chase of it, reached it first and then delivered a perfect through-ball which Bacca converted into a goal.
It was a marvellous piece of skill from Rakitic and Ancelotti's angry reaction showed just how hurtful a moment it was for the visitors.
They rallied in an attempt to save the game but efforts from Bale, Marcelo and Xabi Alonso were all off target.
There was further misery for them in injury time as Ronaldo openly dissented against Bale for taking a 20-yard free-kick ahead of him and slapping it over the bar.