Rafa Benitez celebrated his first win in charge of the La Liga glamour side since replacing Carlo Ancelotti and clinched his first piece of silverware.
The International Champions Cup may not take pride of place in the Spaniard's trophy cabinet, but Benitez was pleased with his forwards' ruthless demolition of a City side missing three leading central defenders.
After a subdued game in Real's tournament opener against AS Roma, a penalty shootout loss, Cristiano Ronaldo was mesmerising, scoring a goal and causing constant headaches for the City defence.
"It has been a very good time here," Benitez told reporters. "Really pleased with everything.
"Every day our physical condition is a little bit better.
"The team was playing with intensity, aggression."
It was a bad night for City, however, with new recruit Fabian Delph carried off the field on a stretcher after suffering an apparent hamstring injury early in the first half.
That followed Eliaquim Mangala's withdrawal before the match due to illness, joining centre backs Vincent Kompany and Martin Demichelis on the sidelines.
"We knew before the game that it was difficult to play against a team that has such good attackers with missing three central backs," City coach Manuel Pellegrini said.
Karim Benzema opened Real's account in the 21st minute, latching on to a Gareth Bale cross and hammering in a delightful right-foot volley from the centre of the box.
Three minutes later, Ronaldo ran on to a sublime lofted through-ball from Toni Kroos and although keeper Joe Hart got a hand to the shot it still found the net.
Pepe headed in a third a few minutes from the break after Isco found the defender unmarked in the centre of the box.
City pulled one back in the half's stoppage time through Yaya Toure, who slotted in a penalty after Real captain Sergio Ramos was penalised for handball when attempting to cut off a threat from Raheem Sterling.
A piece of Isco inspiration created Real's fourth in the 72nd minute, the Spain midfielder dancing around the defence on the right of the box before steering a low cross into the path of Denis Cheryshev.
The attendance comfortably outstripped the MCG's previous 95,446 record crowd for a soccer match for Liverpool's friendly against local side Melbourne Victory in 2013.
(Corrects spelling of Cheryshev in penultimate para)
(Editing by Ed Osmond)
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