Defending champion Nadal took just 69 minutes to dismantle Monaco on the Madrid clay, dropping only one game on his way to the last 16.
The Spaniard - a three-time winner in Madrid - was imperious after something of a shaky start, with the sole blemish on his performance coming when he dropped serve in the third game of the opening set.
Aside from that blip, Monaco simply could not compete with the world number one, who took the first set 6-1 before setting his stall out in the second by breaking his opponent to love in the first game.
Nadal then reeled off the next five games in style to book a third-round clash with unseeded Finn Jarkko Nieminen, who earlier overcame Igor Sijsling 6-3 6-2.
Wednesday's late match saw seventh seed Andy Murray defeat Nicolas Almagro in three sets.
Reigning Wimbeldon champion Murray, who won the 2008 Madrid Open, got off to a stunning start by taking the opening set 6-1 in just 34 minutes, but Spaniard Almagro responded in kind with three breaks in the second set.
The first nine games of the decider went with serve, before Murray grabbed a crucial break to see out the match 6-1 1-6 6-4.
Sixth-seeded Czech Tomas Berdych, meanwhile, had few problems in beating Kevin Anderson 6-1 6-4 - his 11th straight win over the big-serving South African.
Anderson was uncharacteristically sloppy on serve in the first set, dropping twice to gift 2012 runner-up Berdych the opener in just 27 minutes.
Berdych then picked up where he left off by breaking Anderson in the very first game of the second set, and that proved to be enough as he held all five of his service games to close the match out.
The world number six will now meet Grigor Dimitrov, after the Bulgarian 12th seed came from behind to defeat Romanian wildcard Marius Copil 4-6 6-3 7-6 (9-7).
John Isner, seeded ninth, edged past Australia's Marinko Matosevic 7-6 (11-9) 6-7 (5-7) 7-5.
It took until the 36th and final game of the match for either player to drop serve after tie-breaks had decided the first two sets, and it was Matosevic who blinked first by being broken at the death.
Jo-Wilfried Tsonga was Wednesday's major casualty in the men's draw, as the French 11th seed was defeated 6-4 6-3 by Colombian qualifier Santiago Giraldo - who will now play Murray.
Marin Cilic beat Paul-Henri Mathieu 6-4 1-6 6-2 to book a third-round clash with Ernests Gulbis, who overcame Alexandr Dolgopolov 6-3 6-4.
Elsewhere, 15th seed Mikhail Youzhny was beaten by Feliciano Lopez 3-6 6-3 6-4 and 2008 runner-up Gilles Simon went down 7-5 2-6 6-4 to Poland's Lukasz Kubot.