The result means Barcelona can move top of the league table if they can beat Levante on Sunday and sets up an intriguing race to the title for the final third of the campaign.
Osasuna have been enjoying a strong season, sitting inside the top half of the standings, carrying that form into their match against Los Blancos and were full value for their win.
They created around the same number of chances as their more illustrious visitors and generated more xG in a strong performance that will give them a lot of confidence going into the business end of the season.
Ante Budimir put the home side ahead from the penalty spot in the 38th minute and Thibaut Courtois stood on his foot in the box to impede his breakthrough.
Vinicius got the visitors back on level terms after latching on to a low cross from Federico Valverde before blasting the ball past Sergio Herrera.
However, it was not to be for Madrid as Raul Garcia de Haro skipped past his marker in the 90th minute before sliding home an accurate finish from a tight angle.
The goal was initially ruled offside before VAR overruled the on-field decision to award Osasuna the winning goal and send the home fans into raptures and condemning Alvaro Arbeloa to his first league defeat in six games at the helm of Real Madrid.
Elsewhere in LaLiga on Saturday, Atletico Madrid thumped Espanyol 4-2 in a goal-fest at Riyadh Air Metropolitano.
Jofre Carreras got the visitors off to a brisk start with a goal in the sixth minute but Alexander Sorloth was able to restore parity in the 21st minute.
Giuliano Simeone put the home side ahead four minutes after the break, with Ademola Lookman making it 3-1 in the 68th minute.
Sorloth then secured the result when he completed his brace in the 72nd minute before Edu Exposito was able to grab a consolation goal 10 minutes from time.
Cedric Bakambu (16') and Isi Palazon (42') traded goals as Real Betis and Rayo Vallecano drew 1-1 at Estadio de la Cartuja, while Athletic Club needed a late penalty to overcome Elche 2-1 at San Mames.
Gorka Guruzeta put Athletic ahead with a 64th-minute strike but the lead only lasted five minutes before an Andre Silva penalty got Elche back on level terms.
However, Guruzeta was also able to convert a penalty in the 89th minute to snatch the points for Bilbao.
A late flurry of goals saw the points shared at Reale Arena with Real Sociedad and Real Oviedo drawing 3-3.
After a drab first half, the action picked up in a big way in the second period.
A quick-fire double by Federico Vinas in the 50th and 52nd minutes put Oviedo ahead before Orri Steinn Oskarsson pulled one back for Sociedad in the 64th minute.
Duje Caleta-Car struck in the 87th minute to restore parity before Oskarsson completed his brace to put the home side 3-2 ahead.
However, Eric Bailly would have the final say with a goal two minutes into stoppage time to salvage a point for Oviedo.
Paris Saint-Germain have decided to end their legal battle with Kylian Mbappe after confirming they will not appeal a French labour court ruling ordering the club to pay up to 61 million euros in unpaid wages and bonuses.
Former Bafana Bafana striker Benni McCarthy believes Jose Mourinho should admit he "made a mistake" after his controversial comments following the alleged racial abuse of Vinicius Junior during Real Madrid's Champions League win over Benfica.
Real Madrid have received a much‑needed boost as defender Eder Militao edges closer to returning from a serious hamstring injury that has kept him out since early December.
Arne Slot has confirmed that Alexander Isak is edging closer to a return for Liverpool, with the striker expected to rejoin full training around the end of March or early April.
