Real Madrid had gone 32 years without winning the European Cup until the end of the 1990s and the beginning of the 2000s, when they won the UEFA Champions League in 1998, 2000, and 2002. The team's cluster of world stars inspired the label 'Galácticos' in the last few years of this period. Real Madrid president Florentino Perez initiated an unusual experiment after his team won the European Cup for the first time in thirty years in 1998. Every summer, the 'Galacticos' endeavour entailed signing a world-class superstar.

Coach: Guus Hiddink, John Toshack, Vicente del Bosque, Carlos Queiroz, José Antonio Camacho, Mariano García Remón, Vanderlei Luxemburgo

Trophies: 3 Champions League (1997–98, 1999–2000, 2001–02), 2 Intercontinental Cup (1998, 2002), 2 La Liga (2000–01, 2002–03), 3 Supercopa (1997, 2001, 2003)

Star Players: Iker Casillas, Cladio Makelele, Roberto Carlos, Fernando Hierro, Luis Figo, Zinedine Zidane, Raul, Ronaldo, David Beckham, Clarence Seedorf

Real Madrid won the title in 1996/97, and players like Predrag Mijatovic, Davor Suker, Clarence Seedorf, Roberto Carlos, and goalkeeper Bodo Illgner arrived to bolster a roster that already included Raul, Fernando Hierro, and Fernando Redondo. As a result, Real Madrid (with the arrival of Fernando Morientes in 1997) finally ended their 32-year wait for their seventh European Cup, defeating Juventus 1–0 in the final in 1998 under manager Jupp Heynckes, with a goal from Mijatovic.

Vicente del Bosque took over as coach in November 1999. The team was still captained by ageing veterans like Fernando Hierro, Fernando Redondo, Roberto Carlos, and Ral González in the final season of the century, 1999–2000. Real added the young talents of Morientes, Guti, and Iker Casillas, as well as McManaman and Anelka from the English Premier League, as well as local players Salgado and Helguera. Real won the Champions League for the eighth time in Del Bosque's first season in charge, with goals from Morientes, McManaman, and Raul in a 3–0 victory over Valencia in the final. This triumph signalled the start of a prosperous era in Real Madrid's history.

Florentino Pérez was named president of the club in July 2000. Perez instituted a Galacticos policy, ensuring that a global star joined Madrid every summer. Pérez began his presidency with a major signing, persuading Luis Figo to join from Barcelona, their arch-rivals. Then came Zidane, Ronaldo, and Beckham, who formed a team that garnered global attention and created a sense of anticipation wherever they went. The Galácticos reached their pinnacle at Hampden Park in Glasgow, as Zidane helped Madrid win their ninth European Cup. The Frenchman had joined the side as the world's most expensive player the previous summer and quickly established himself as a key member of Vicente del Bosque's squad. Raul gave Real Madrid the lead in the 2002 UEFA Champions League final against Bayer 04 Leverkusen, but the German team equalised. Then, on the stroke of half-time, Zidane scored an amazing goal to put Madrid ahead.

Madrid won the UEFA Champions League twice, two Liga titles (2001 and 2003), a UEFA Super Cup (2002), two Spanish Super Cups (2001 and 2003), and the Intercontinental Cup (2002) between 2000 and 2005, with a style of play that was notable for its spectacle, unpredictability, and, at times, imbalance. Julio Baptista (€24 million), Robinho (€30 million), and Sergio Ramos (€27 million) were among the new arrivals for the 2005–06 season. The following month, Madrid's coach, Wanderley Luxemburgo, was fired and replaced by Juan Ramón Lopez Caro. After losing the first leg of the Copa del Rey quarterfinal 6–1 to Real Zaragoza, a brief recovery to form came to an end.

Real Madrid were knocked out of the Champions League for the fourth year in a row shortly after, this time by Arsenal. Florentino Perez resigned on February 27, 2006. Until Perez unveiled his next wave of Galacticos, who included Cristiano Ronaldo, Gareth Bale, and Karim Benzema, their eighth UCL victory was their last European triumph in nearly a decade.