Tiago Mendes opened the scoring for the champions at a raucous Vicente Calderon after 13 minutes, and substitute Saul Niguez doubled the lead with an acrobatic goal just moments after replacing Koke.
Antoine Griezmann and Mario Mandzukic added to the goal glut in the second half to leave stunned Real thoroughly humiliated.
The win saw Atletico cut the gap to league leaders Real to four points and gave Barcelona the chance to close it to just one if they win at Athletic Bilbao on Sunday.
Villarreal limped their way to a 2-0 win over strugglers Granada to keep the pressure on fellow Champions League chasers Valencia and Sevilla.
Mateo Musacchio broke the deadlock after the half-hour mark from close range but Granada refused to lie down after going behind and kept on searching for an equaliser until Gerard Moreno’s last-minute goal made a home win certain.
David Barral fired a hat-trick as Levante moved off the foot of the table with a shock 4-1 win against Malaga.
The Valencia-based side had not won any of their previous nine games but ended that run in emphatic fashion as Barral’s treble, two of which came from the penalty spot, and a goal from Kalu Uche got them back to winning ways.
Juanmi had given Malaga the lead but that was as good as it got for Javi Gracia’s men, who are now six points adrift of a European spot.