Los Blancos were second best at Anfield on Wednesday night in the fifth week of fixtures in the revamped European Cup league phase.
Second half goals from Alexis Mac Allister and Cody Gakpo proved to be the difference.
But things could have been different had Kylian Mbappe dispatched his 61st minute penalty to level up the scoring.
However Caoimhin Kelleher expertly parried away his effort from 12 yards to stop the ball from nestling into the bottom right corner.
Mohamed Salah then blasted a penalty wide shortly later, however Liverpool held on for the victory as Real's nightmare continues.
Most read in Football
Gareth Bale suggests theory for Mohamed Salah's public Liverpool contract statement
Ruud van Nistelrooy set for instant return to football to fill vacant managerial position
They have now lost three games from their five matches - the most they have managed in a single group phase in the competition.
Carlo Ancelotti's men have also lost away at Lille and at home to AC Milan so far.
Their latest loss leaves them in 24th spot of the 36-team table - the final play-off position.
In contrast, Liverpool have now won all five of their group matches to remain top of the table.
Most read in Champions League
Liverpool vs Real Madrid LIVE: Alexander-Arnold back on bench, no Vinicius for visitors
Bellingham aims to emulate Gerrard as Liverpool take on Real Madrid, City in crisis
Aston Villa couple joined Juventus in rare transfer but now one could be forced to leave
Pep Guardiola releases statement to clarify 'self-harm' comment after Man City draw
It is just the second time in their history that they have won their opening five fixtures of a major European campaign.
The last time came in the 2021/22 season, where they won their opening seven matches en route to losing to Madrid in the final.
And their victory over Madrid is the first time they have emerged victorious over the LaLiga giants since 2009.
In the last 15 years, the two teams have met on eight occasions - including twice in the Champions League final.
And Real have won seven of the ties, with Liverpool's only positive result a 0-0 draw in the 2021 Champions League quarter-final second leg.
Though that failed to matter as Real won the first leg 3-1 at the Estadio Di Stefano.
But without Vinicius Jr, Real looked toothless in attack in the most recent clash between the two European powerhouses.
They managed just three shots on target, compared to Liverpool's seven, and enjoyed just 37 per cent of the possession.
And they not sit nine points behind Liverpool heading into their next clash away at Atalanta.
More to follow...