The 10-times European champions, who take on Paris St Germain at home in Group A on Tuesday, are still unbeaten this season but Benitez reckons they have more to give.
"The team are doing well but I am convinced that they will improve. I want to see the best team when we are competing for titles," the Spaniard told a news conference on Monday.
"We've got a great margin of improvement. I hope the best is yet to come."
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Under Benitez, Real have turned into a more compact side, playing tight at the back and looking to bring the ball forward as fast possible, giving the impression they are a defensive team, which the former Liverpool manager has been denying.
He has not been able to reunite his attacking trio of Cristiano Ronaldo, Karim Benzema and Gareth Bale since the Welshman limped off against Shakhtar Donetsk on Sept. 15.
On Tuesday he will again have to make do without Benzema and Bale but James Rodriguez is back in the squad after injury.
"He's on the list, he’s better. That does not mean he starts. He lacks match fitness," said Benitez.
Sergio Ramos also returns to the squad but Raphael Varane and Pepe are expected to start in central defence.
Real are level on seven points from three games with PSG in Group A after a goalless at the Parc des Princes last week.
(Writing by Julien Pretot in Paris; Editing by Ken Ferris; Editing by XXXX)
