The Portuguese left-back has joined Monaco as a replacement for Layvin Kurzawa, who is set to join Paris Saint-Germain.
The ex Benfica player has joined the French club a one-year loan deal. The 27-year-old who can also play in midfield will become the club's first choice left-back.
Monaco president Vadim Vasilyev said: "Coentrao arrives tonight in the form of a loan deal.
"Kurzawa wanted to go to PSG and we have been paid a very large amount. But we have found an alternative."
After suffering an injury-hit 2014-15 campaign, which saw him make just nine Primera Division appearances for Madrid Coentrao joins Monaco after playing second fiddle to Marcelo for much of his time in Madrid.
Real released a statement on their website: "Real Madrid and Monaco have agreed to the transfer of player Fabio Coentrao until June 2016."
It will be recalled that Coentrao joined Madrid from Benfica in 2011 during Jose Mourinho s era.
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