Cristiano Ronaldo netted for the 20th time in 13 appearances this season to open the scoring and move within one of former Real stalwart Raul's Champions League competition record of 71 goals.
While the European champions' first featured slick passing and a world-class finish, Liverpool were the architects of their own downfall from there as Karim Benzema twice capitalised on slack defending to net a double before half-time.
It was a matter of damage limitation for Liverpool after that, with the Premier League side playing out a spirited second half without a recognised striker.
Real retained their menace throughout but were able to leave plenty in reserve for Saturday's mouthwatering El Clasico showdown with arch-rivals Barcelona.
Under-fire forward Mario Balotelli retained the faith of home manager Brendan Rodgers and the enigmatic Italian passed up the chance to play through Raheem Sterling when Isco lost possession in the second minute.
Ronaldo then thundered an early drive into the chest of Simon Mignolet, while there were awkward moments for the Liverpool goalkeeper's opposite number.
Iker Casillas parried the ball clear when a long-range Steven Gerrard strike dipped awkwardly and the experienced shot-stopper then showed poor handling from a 13th-minute corner.
Casillas and Madrid's travelling fans had their nerves settled, though, when Ronaldo opened the scoring in superb fashion after 23 minutes.
Having exchanged passes with Benzema, the FIFA Ballon d'Or holder charged onto a chipped return ball from James Rodriguez to sweep home on the half-volley.
And Liverpool had a mountain to climb with half an hour played, as Benzema looped a header beyond Mignolet on the end of Toni Kroos' floated cross.
A rare moment of indecision allowed Glen Johnson to deny Ronaldo five minutes before half-time but woeful defending from the resulting corner sealed Liverpool's fate.
Pepe knocked down Kroos' delivery and the ball squirmed beyond Mignolet and flailing Liverpool legs to leave Benzema with a formality tap-in.
The recalled Joe Allen side-footed wide and fellow midfielder Philippe Coutinho clattered a shot against the post from distance, but Liverpool could not grasp a lifeline before half-time.
Balotelli exchanged shirts with Pepe at the interval and it was his last act, as Adam Lallana replaced the former Manchester City man for the start of the second period.
Liverpool attacked in spirited fashion upon the resumption, although a vital challenge from Martin Skrtel to stop a storming run from Isco demonstrated the perils they still faced against a counter-attacking Real.
Skrtel was caught napping by a rampaging Ronaldo in the 62nd minute and Mignolet got behind a firmly struck shot, before denying the same player from close range as Real sliced through the home defence once more.
Sterling kept Casillas involved at the other end and Allen scrambled a shot wide in the 72nd minute before Benzema and Rodriguez combined incisively for the latter to steer wide in front of the Kop.
Three wins from three means Real's passage from Group B is already virtually assured, while Liverpool must bounce back from consecutive defeats to overhaul second-placed Basel.
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