From an architectural perspective, this is one of the palace's most intriguing locations. It may be reached from the gallery that encircles the main courtyard, which is situated in the middle of the north side of the palace's main level. Although Ventura Rodriguez, Sachetti's then-assistant, had originally submitted a different design, Ferdinand VI ultimately chose it. Built between 1750 and 1759, the chapel. Its floor plan is either round or elliptical, and its dome is half-orange in color. There is a single, black marble column from Maaria (Vizcaya) at each of the corners that make up the floor plan, with the exception of the atrium, which features black pilasters that mimic marble. There are a total of sixteen such columns. These columns have capitals made of gilded stucco. The main marble altar is located to the east of the chapel, the gospel altar is located to the north, the organ is located to the west, and the atrium is located on the southern side. Close to the high altar, which is on the right, the royal seats are situated on the north side.

The Royal Chapel's decorating was planned and overseen by the painter Corrado Giaquinto, who also created the frescoes in the chapel and atrium. Felipe de Castro painted the angels on the drum. Ramón Bayeu's picture of Saint Michael defeating the demons is displayed on the high altar, and Mengs' final piece, The Annunciation, is displayed on the Gospel altar. The canopy and the sovereign's seats were fashioned of white satin with silver embroidery and colored silks during the reign of Ferdinand VI. The organ, which Jorge Bosch Bernat constructed in 1778, is regarded as a real masterpiece. The Chapel is home to Saint Felix's bones, which are displayed as a wax figure inside a glass sarcophagus.

The Royal Chapel has recently been used as a mortuary chapel for burials of members of the Spanish royal family, including Don Juan de Borbón, Count of Barcelona, in April 1993, and Mara de las Mercedes de Borbón-Dos Sicilias, Countess of Barcelona, in January 2000. A Te Deum was performed in this chapel in November 2000 to mark the 25th anniversary of Juan Carlos I's coronation as King of Spain.