The search to replace Zinedine Zidane, who left after guiding Real to a third-straight Champions League title, lasted nearly two weeks, with Mauricio Pochettino, Antonio Conte and Jurgen Klopp among the names reportedly in the frame.
The 51-year-old has signed a three-year deal with the European champions, per the Guardian.
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Lopetegui has endured a mixed managerial career thus far, but has history with Los Blancos, having managed the club's B team between 2008 and 2009.
The Spain boss will take over at Santiago Bernabeu after the 2018 World Cup.
Lopetegui is now preparing to lead Spain at the World Cup but the 51-year-old will depart his role as national team coach at the end of the tournament.
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Bemba's supporters back in the DRC, meanwhile, celebrated the decision as a vindication. Bemba's release may pave the way for him to retake the reins of his political party.
Spain qualified for Russian Federation 2018 with relative ease, topping a group containing Italy. They also scored 36 goals, and their form means they are one of the favourites ahead of the tournament in Russian Federation.
He was sacked after just 10 games in charge, and after a spell away from management, he took up a coaching role with Real Madrid Castilla.
Lopetegui will have his work cut out at Real Madrid, where standards are high and patience tends to be short with managers unless they deliver instant success.
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With Real Madrid appointing Julen Lopetegui after the World Cup is over, plenty are pointing out how this is HUGE news for one current member of the squad.