The result was a disappointing one for City, who were eliminated from advancing to the knockout round of the Champions League.
City can only finish as high as third place and make the knockout round of the Europa League if they beat Borussia Dortmund in two weeks.
Real Madrid clinched a spot in the knockout round, but they will only finish second in the group behind Borussia Dortmund.
There were plenty of players who starred in the match like Cristiano Ronaldo and Sergio Aguero.
Here are the ratings for every player who stepped on the pitch at the Etihad Stadium on Wednesday.
Joe Hart, Manchester City, 7
Hart was caught out on Cristiano Ronaldo's chip in the first half that was cleared off the line by Matija Nastasic.
The first-choice keeper for both his club and country was beaten in the 10th minute by Karim Benzema and was solid for the rest of the match.
Hart was not too busy in the second half and ended the match with three saves.
Iker Casillas, Real Madrid, 7.5
Casillas yet again delivered a solid performance in the Real Madrid net with his only flaw being on the 73rd minute penalty by Sergio Aguero.
Aguero's penalty was sent to the right, and Casillas guessed wrong and dove to the left.
The man they call St. Iker made five saves on the night for Real Madrid.
Pablo Zabaleta, Manchester City, 6.5
Zabaleta was nonexistent in the first half when City played with three defenders at the back but had more of an impact in the second half when the Citizens moved to a back four.
Zabaleta was one of six players to earn yellow cards in the second half. He earned his in the 58th minute.
Alexander Kolarov, Manchester City, 6
Kolarov was taken off at the beginning of the second half for Javi Garcia.
In his time on the pitch, Kolarov was the man in charge of taking the free kicks for City, but he did nothing spectacular with those chances.
Maicon, Manchester City, 5.5
The Brazilian was at fault for the Real Madrid goal as he failed to cover Karim Benzema's run from behind him, and the Madrid forward was left wide open and easily put the ball past Joe Hart.
Maicon moved back to his traditional fullback position when Garcia came on the pitch at halftime, and City switched to a 4-4-2.
His impact on the match was much more positive in the second half, but that mistake in the first half on the goal overshadowed any good the Brazilian did on Wednesday.
Alvaro Arbeloa, Real Madrid, 5.5
Arbeloa was the man sent off for Real Madrid after earning his second yellow card in the 73rd minute.
His first yellow card came off of a clumsy tackle on Sergio Aguero in the 32nd minute, and his second yellow card will be debated by many on if it really was worth giving a penalty to Aguero.
Arbeloa was sent off, and Aguero converted the penalty for City which stood as the equalizer.
Fabio Coentrao, Real Madrid, 6.5
Coentrao's name was not called much by the match commentators on Wednesday, which is not a bad thing for the Portuguese fullback.
Coentrao did have the most touches out of all the Madrid players at the Etihad Stadium with 68.
Matija Nastasic, Manchester City, 7
Nastasic started as part of the three in the back for City before moving to a more central position when City shifted back to the 4-4-2 formation.
The biggest contribution made by the defender was his clearance of Cristiano Ronaldo's chip shot over Joe Hart as Nastasic chased the ball down and cleared it off the goal line.
Vincent Kompany, Manchester City, 6.5
The Manchester City captain was not a huge presence in either the defense or attack for the EPL side on Wednesday.
Kompany was surprisingly quiet going forward when City were attacking, but you also have to realize he was marking a very potent Real Madrid attack that only scored one goal.
Pepe, Real Madrid, 6.5
Just like his counterpart at center back, Pepe turned in a solid performance against a strong attack but was also not heard from much in the attack.
When called upon to defend, Pepe was there for his club, but he did not do anything good or bad that cost or won his club the match.
Sergio Ramos, Real Madrid, 6.5
Ramos was one of the many players who found himself in the referee's book in the second half.
The Spanish center back was whistled for a hand ball in the 61st minute and then was handed a yellow card for the incident.
Other than that, Ramos had a solid match alongside Pepe in the middle of the Real Madrid defense.
Yaya Toure, Manchester City, 6.5
Toure was stuck as the lone central midfielder in the original City formation with three defenders at the back and plenty of attacking midfielders around the Ivorian.
Once Javi Garcia entered the match at the start of the second half, Toure was able to move forward in the attack more, but he could not come up with one of his trademark second half goals for City.
Xabi Alonso, Real Madrid, 6.5
Alonso was involved in two plays that involved yellow cards being handed out.
His first involvement was on Alvaro Arbeloa's foul on Sergio Aguero in the 32nd minute in which Alonso decided to finish off Arbeloa's tackle as he took down Aguero.
He did not earn a yellow card on that play, but he did in the 48th minute with a foul outside the Manchester City penalty area.
Sami Khedira, Real Madrid, 7.5
Besides Cristiano Ronaldo, Khedira was the best player in the Madrid attack on Wednesday night.
Khedira was unlucky not to score a goal in the match since he had two chances in the first half right after Madrid's goal.
The German international also had a strong chance early in the second half to score, but he also failed to convert that as well.
Luca Modric, Real Madrid, 7
Modric lined up behind forward Karim Benzema in the attacking midfield trio and delivered another solid performance.
His night ended early after he was taken off in the 68th minute for Jose Callejon.
Samir Nasri, Manchester City, 6
Nasri was not a huge factor in the first half for City, but he did begin to shine in the second half before he was taken off for Carlos Tevez.
The Frenchman did not have a horrible performance, but he could have played better.
David Silva, Manchester City, 8
Silva was everywhere in the City attack during the second half and was the man of the match for the hosts.
Silva was the most active of the Man City players with 90 touches of the ball that resulted in an 84 percent pass success rate.
Angel Di Maria, Real Madrid, 7
Di Maria provided an assist on Madrid's goal in the 10th minute as he found Karim Benzema wide open in front of the Man City goal.
Di Maria was an active force in the attack in the first half, but he cooled off in the second half once City began to move forward more
Cristiano Ronaldo, Real Madrid, 8.2
Ronaldo turned in a typical Ronaldo performance against Manchester City.
There were moments where he showed off his excellent skill set, like his shot on goal in the first half when he chipped the ball past Joe Hart, but he did not score as the shot was cleared off the line by Matija Nastasic.
There were also moments where Ronaldo's trademark of complaining to the referee dominated the match, which was for most of the match.
Overall, Ronaldo had a solid performance and was Madrid's top player on the pitch.
Sergio Aguero, Manchester City, 8
Aguero was City's best player on Wednesday, and his impact was felt throughout the whole 90 minutes.
The Argentinian's run forward in the 73rd minute resulted in a penalty after he was taken down by Alvaro Arbeloa in the penalty area.
Aguero easily converted the penalty to equalize the match for City, but that was all he could do as City were eliminated from the knockout round of the Champions League.
Edin Dzeko, Manchester City, 5
Dzeko should stay in his role as the super sub for City.
The Bosnian forward was very ineffective alongside Aguero up front as he only produced two shots in the whole match.
In future matches, Dzeko should be replaced by Carlos Tevez up front, who works much better with Aguero.
Karim Benzema, Real Madrid, 7
Benzema took advantage of poor defending by Maicon to find an open space in front of goal to score Madrid's goal in the 10th minute.
The French forward easily finished the cross he received from Angel Di Maria, which was one of his four shots in the match.
He was taken off the pitch for Raphael Varane in the 74th minute after the second yellow was handed out to Arbeloa.
Javi Garcia, Manchester City, 6
Garcia came on for Alexander Kolarov at the start of the second half to provide some stability in the midfield alongside Yaya Toure.
Garcia's addition to the squad in the second half let Toure move forward in the attack for the rest of the match.
The Spanish midfielder also picked up a yellow card in the 90th minute.
Carlos Tevez, Manchester City, 6.5
Tevez should have been in the starting lineup for Roberto Mancini on Wednesday but was instead left on the bench until the 60th minute when he replaced Samir Nasri.
Tevez was able to be a force in the City attack for his 30 minutes on the pitch with two shots in his time on the pitch.
James Milner, Manchester City, 5
Milner came on in the 88th minute for Sergio Aguero and was unable to have an instant impact on the match in the final minutes.
Jose Callejon, Real Madrid, 5
Callejon had 12 touches in 22 minutes and could not get into the Madrid attack. He had to stay back and help defend during the bombardment from City in the second half.
Raphael Varane, Real Madrid, 5.5
Varane was a quiet player in the Real Madrid defense after replacing Karim Benzema in the 75th minute.
The center back was used as cover in the back four after Alvaro Arbeloa was sent off two minutes before the Frenchman came on to the pitch.
Raul Albiol, Real Madrid, 5
Just like Milner for Man City, Albiol came on late in the match and did not have any impact on the match.