In 1504, Ferdinand and Isabella decided to found a funerary chapel for themselves and their descendants in the capital of the last territory reconquered from the infidel. Located in part on the former site of the Great Mosque, its construction was begun by Master Egas and continued with other projects, though always in the Flamboyant Gothic style and on the basis of the type of funerary chapel that had already been established for other members of the royal family: a single aisleless nave, a polygonal chancel, a choir loft at the west end and a raised high altar reached by steps. Finished in about 1515, its interior contains the remains of the Catholic Monarchs and of their daughter, Joan, and her husband, Philip of Burgundy. They lie in a crypt beneath two superb catafalques of Carrara marble carved in a refined classical Renaissance style by Domenico Fancelli (1515) in the case of Ferdinand and Isabella, and by Bartolomé Ordóñez, a Spaniard who had worked in Italy, in that of Joan and Philip.

The Chapel is enriched with Flemish panel paintings from Queen Isabella's collection and painted altarpieces by the Florentine Jacopo Torni and by Pedro Machuca, who had trained with Raphael. The altarpiece in the high chapel, the first of its kind in the Spanish Renaissance, was the work of Felipe Bigarny, while the wrought iron grille that separates the crossing from the nave is a genuine work of the Spanish Renaissnce by Master Bartolomé.

Adjoining the Chapel and perpendicular to it is a two-storey building with a rectangular plan. This is the old Merchants' Exchange, built on land belonging to the Chapel, which led to litigation between the two institutions. It was finally agreed in 1518 that the Exchange would occupy the lower floor and the Chapel the upper. Its style is a hybrid of Gothic and a very early Renaissance. Today it belongs entirely to the Royal Chapel.