The German champion will face Carlo Ancelotti's side over two legs as the team bids to reach its fourth final in five seasons, while Atletico Madrid will meet Chelsea in the other last-four encounter.
Lahm feels the clash with Cristiano Ronaldo and Co. represents the toughest test Bayern could have expected prior to the draw - but is nonetheless excited about the challenge of trying to end Madrid's latest bid for a 10th European Cup.
"It's a fantastic semifinal," the versatile defender stated. "Two big clubs with a lot of tradition will meet each other. Bayern against Real - it can't get any bigger in European football at the moment.
"We want to prevail and reach the final, no doubt about it."
Franck Ribery is equally enthused by a tie that he feels is almost guaranteed to produce goals given the two teams' footballing philosophies.
"It's a difficult draw," said the Frenchman. "Two of the best attacking sides of the world will meet. It will be two great matches. I really hope that we can reach the final."
Goalkeeper Manuel Neuer - who was the hero of Bayern's penalty shootout victory over Madrid in the semifinal clash of 2012 - is expecting spectacular scenes in the Spanish capital when all four sides come face-to-face across two matchdays in the city.
"I'm looking forward to playing again at the [Santiago] Bernabeu," he said. "I have many positive memories when I think about that stadium. It was crazy to win the second leg of the semifinal two years ago on penalties.
"And I am curious about the mood in Madrid because Real and Atletico will play at home first. There will be supporters of all four semifinalists in the city on Tuesday and Wednesday. It surely will be a big party."