The first code of laws was established in Madrid in 1118. This was the same code that had been used in Toledo since 1085. This primarily agrarian society gradually developed into an urban one, as revealed in the charter adopted by Alfonso VIII in 1202. A council was created as well. It came to play a very important role in Castilian society, to the extent that it allowed a group of Madrid citizens to support Alfonso VIII in his battle against the Muslim conquistadors in Las Navas de Tolosa.

The crown was opposed to the traditional noble society throughout much of the 14th and 15th Centuries, and numerous conflicts took place in Castilla reflecting this fundamental tension. Aristocrats were not in favor of a stronger centralised government. As a final result, the nobles lost their privileges. The severest conflicts occurred in the mid-14th Century, when the struggle between Pedro I and his brother Enrique de Trastamara reached its zenith. After Pedro was assassinated, Enrique rose to power and retaliated against his brother's supporters, taking Barajas, Cobena and Alcobendas from them. These territories then passed to the Mendoza family.

Madrid became a key royal residence after the 14th Century. The court was held there quite frequently. Sadly, the black plague ravaged the city during the second half of the Century. Interestingly, there are many notable mementos of the Middle Ages in the city today. The House and the Tower de los Lujanes in the Plaza de la Villa date from the 15th Century. King Francis I of France was imprisoned in the tower after the Battle of Pavia. Adjacent to the tower is the Hemeroteca Municipal, a building with a Mudejar doorway. An alley just beyond the Plaza de la Villa leads to San Nicolas de los Servitas. This is the oldest church in the city. Its Moorish-style tower is reminiscent of the days of Arab rule. The belfry of the Church of San Pedro el Real shows the influence of the Mudejar style. The old Moorish district (Moreria) is located between the Plaza de la Paja, El Alamillo, the Plaza de la Cruz Verde and the Ronda de Segovia. The Plaza de la Paja was a very important square in the Middle Ages.