The 24-year-old midfielder has signed a six-year contract with the current Champions League holders.
"We would like to thank Toni Kroos for his time here in Munich," said Bayern chairman Karl-Heinz Rummenigge.
"We enjoyed great success here together. We would like to wish him and his family all the best in Madrid and with Real."
Kroos won three Bundesliga titles in four seasons with Bayern, clinching the DFB-Pokal three times and being part of the historic treble-winning side of 2012/13.
That year they also clinched the Champions League, before winning the UEFA Super Cup and FIFA Club World Cup last season.
In total, Kroos made 173 Bundesliga appearances, scoring 23 goals, 13 for Bayern and 10 during an 18-month loan spell at Bayer Leverkusen.
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