After 120 minutes of action ended in a 1-1 draw, Atletico's Juanfran was the unfortunate man to miss, allowing Cristiano Ronaldo to slot home the decisive spot-kick as Real won 5-3 on penalties.
Real were much the better team in the first half and took the lead through Sergio Ramos, who got a faint touch on Gareth Bale's header from close range to haunt Atletico again after his vital goal in his side's 2014 victory.
Atleti came out fighting after the break, but Antoine Griezmann crashed a Penalty against the crossbar as they looked set to fall to another painful defeat against their city rivals in club football's biggest fixture.
But substitute Yannick Carrasco's strike from inside the six-yard box with 11 minutes remaining sent the game to extra-time, where neither side found a winner to prevent spot-kicks.
But Atletico hearts were broken again as Ronaldo punished Juanfran’s crucial miss in the penalty shoot-out, with the Portuguese’s topless celebration and tears from the Colchoneros fans bringing back memories from their defeat in Lisbon.
Real's victory means they are now 11-time European champions with Zinedine Zidane becoming the seventh man to win the tournament as both player and coach after only five months at the helm.