Two goals in the first nine minutes allowed Voro's side to record only their second victory over Madrid in 15 league meetings and bring the leaders' six-game unbeaten run in all competitions to an end.
Simone Zaza's spectacular turn and half-volley after four minutes had the home fans on their feet, and they were sent into raptures when Fabian Orellana scored his fifth goal of the season following a clinical counter-attack soon afterwards.
Madrid began to regain some composure and Cristiano Ronaldo headed home just before the end of a breathless first half of football to give his side some hope.
Ronaldo saw a penalty appeal turned down as Madrid built some sustained pressure after half-time, but despite the visitors enjoying nearly 72 per cent of the possession, Diego Alves went largely unworried in the Valencia goal.
A surprisingly toothless attack was unable to fashion a late equaliser, meaning Madrid remain just a point above second-place Barca in the table, though they still have a game in hand. Valencia climb to 14th.
2 - El Real Madrid have conceded two goals in the first 10 minutes of a La Liga game for the first time since 2003 vs Sevilla. Siesta.— OptaJose (@OptaJose) February 22, 2017
Zaza, who also scored in Sunday's 2-0 win over Athletic Bilbao, put Valencia ahead with only four minutes played, collecting Munir El Haddadi's cross with his back to goal before blasting an unstoppable shot on the turn into the top corner, with the recalled Keylor Navas only able to stand and watch.
Five minutes later, a shell-shocked Madrid found themselves two behind. Raphael Varane was dispossessed in the Valencia half and the home side raced through on the break, with Nani sending Orellana into the box to slot through the legs of Navas.
Munir saw an effort deflect over the crossbar, before James Rodriguez - who had kept his place in the starting line-up - almost squeezed Ronaldo's low cross over the line at the far post in a breathless opening 20 minutes.
Diego Alves reacted brilliantly to keep Karim Benzema's dipping effort from creeping beneath the crossbar but he could do nothing to stop Ronaldo halving the deficit before the break as Madrid made their mounting pressure count.
Marcelo was given time down the left to float a superb cross towards the penalty spot, where Ronaldo rose highest to power a header beyond Alves' right hand.
3 - Most headed goals in Europe's top 5 leagues in the last 10 seasons:— OptaJose (@OptaJose) February 22, 2017
CRISTIANO RONALDO 51
Fernando Llorente 49
Aritz Aduriz 41
Madrid's pressure was relentless after half-time and Ronaldo had a penalty shout waved away after going to ground over an outstretched leg from Eliaquim Mangala, before Zidane turned to Gareth Bale to add some extra dynamism to his attack.
Zaza was aggrieved not to win a spot-kick of his own, having been barged aside by Dani Carvajal following an appalling piece of control from Varane, but Madrid's frustrations were nonetheless growing as Valencia broke up play by winning a number of cheap free-kicks.
Zidane urged his players forward, but - despite several goalmouth scrambles in the closing stages - Madrid could not fashion any meaningful late chances to salvage a draw, meaning Barca - and under-fire Luis Enrique - can allow themselves a little more hope in the defence of their title.