Players danced, sang and held aloft the World Cup trophy as an open-top bus carried the team through the capital city's centre. Authorities estimated that around 120,000 fans were gathered at Cibeles square alone, where the celebrations reached their climax.
Fans, many dressed in Spain's red colours, had been celebrating since early evening with live music and entertainment despite temperatures remaining well above 30 degrees Celsius.
"I am literally on cloud nine," striker Ferran Torres, who scored the extra-time winner in Sunday's 1-0 World Cup final victory over Argentina, said shortly before the parade began.
Some players, including forward Borja Iglesias, played music on a DJ set on top of the bus that had a banner on one side and back that read: "Stars shine together".
The team had returned from the US earlier on Monday, with captain Rodri carrying the World Cup trophy down the aircraft's gangway on arrival. Later they were welcomed by King Felipe VI at Madrid's Royal Palace.
Felipe hailed the squad's "epic" victory and described them as a "legendary and historic team."
"You are tired - but what a wonderful kind of tiredness. Congratulations," he told the players during a reception at Madrid's Royal Palace.
The king praised the team's triumph as the culmination of a true "odyssey" and urged the team to savour the celebrations.
"There is still much to celebrate. Enjoy every kiss, every gesture of recognition, for you have earned them," he said.
Felipe also thanked the squad on behalf of all Spaniards and noted that Spain now holds both the men's and women's World Cup titles.
Felipe had travelled to Sunday's World Cup final in East Rutherford, New Jersey, with Queen Letizia and their daughters, Princess Leonor and Infanta Sofía. During the trophy presentation, the king embraced several players and posed with the World Cup trophy.
In a post on X, the Spanish royal household congratulated the national team, calling the victory "a triumph that will forever be part of the history of Spanish sport."
Following the palace reception, the team paid a courtesy visit to Prime Minister Pedro Sanchez, who wrote on X after the final: "WE ARE WORLD CHAMPIONS. Our national team is tremendous. Thanks, Team."
He added that he was dreaming about the possibility that Spain could win a third male World Cup in the next tournament in 2030 which will be hosted by Spain, Portugal and Morocco.