The Brazilian centre-half was responsible for the Blues falling behind during a Champions League clash in the Spanish capital on Wednesday.
A needless tug on Lucas Hernandez at a corner saw Atletico awarded a penalty and Luiz given a yellow card, with Antoine Griezmann converting from the spot.
Chelsea hit back to snatch a dramatic 2-1 win, but Keane was quick to slam the decision-making of a man who threatened to undermine the efforts of Antonio Conte’s side.
The Manchester United legend told ITV: “It's madness really. It's a form of cheating.
“Why he's doing it is beyond me. He's lazy and he's letting his team-mates down.
“He knows himself. There's no need. We see a lot of that going on, so I'm glad he got punished for it. It's a form of cheating.”
Steven Gerrard has also questioned Luiz’s recent displays and his contribution to the Chelsea cause.
On top of conceding a penalty against Atletico, the 30-year-old centre-half was sent off in his most recent Premier League appearance against Arsenal.
“It's the second time he has let his team-mates down (after) getting the sending off at Stamford Bridge last week,” Liverpool icon Gerrard told BT Sport.
“This is a moment of madness at a time when Chelsea were totally dominating this game and looked likely to make the first breakthrough.”
Alvaro Morata restored parity for the Blues against Atletico, before Michy Batshuayi snatched a last-gasp 94th-minute winner.
Chelsea are next in action against fellow Premier League title hopefuls Manchester City on Saturday, with Luiz set to sit that game out as he continues to serve a domestic ban.