The Liga champion has been linked with a move for a replacement shot-stopper since Iker Casillas suffered a broken thumb in the Copa del Rey clash with Valencia.
With their club captain ruled out for up to 12 weeks following surgery on Friday afternoon, los Blancos have wasted no time in swooping for 31-year-old Lopez, who first joined the capital club as a teenager.
A statement on the club's official website read: "Real Madrid C.F. and Sevilla F.C. have reached an agreement for the transfer of Diego Lopez, who will stay with the club until the end of the 2016/17 season."
Real Madrid had previously been linked with Bayer Leverkusen's Rene Adler as it sought cover for the stricken Casillas.
Lopez will now provide competition for Antonio Adan ahead of this weekend's clash with Getafe.
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