Isco has revealed Manchester City made an offer to sign him this summer but declared that it was impossible to turn down Real Madrid.
The former Malaga playmaker was unveiled on Wednesday in front of thousands of fans at the Santiago Bernabeu.
The midfielder, who joins Madrid for a reported 27million euros (£23m) is the club's third signing of the summer, after the returning Dani Carvajal from Bayer Leverkusen, and Casemiro from Sao Paulo.
Isco admits he was tempted to move to the Etihad Stadium - where he would have been reunited with his former Malaga boss Manuel Pellegrini - but the lure to the Spanish giants was just too much.
"I have few doubts about coming here, because although I knew that Pellegrini wanted me, once I learned that Real Madrid's interest was serious I didn't think twice," he said.
"I had offers from other teams in Europe but its impossible to say no to Madrid, it's a dream for me to play here and here I am."
Questions have been asked about the midfielder's love for the capital outfit after a past interview emerged in which he labelled Madrid "an arrogant club"."
However, he batted away doubts about his loyalty by saying: "It's true that I've been a Malaga fan all my life but now I'm here no one will be able to doubt my commitment to Real Madrid."
Isco joins a Madrid midfield which already boasts an embarrassment of riches, such as Xabi Alonso, Mesut Ozil, Luka Modric, Angel Di Maria, Kaka and Sami Khedira, and he admits it will be hard to cement a regular place in the first team.
"Winning a place in the best team in the world is very difficult and match time here doesn't come for free, but I hope with hard work I will win my place my team," he said.
"There needs to be a lot of competition in every great team, it's a good sign, and I've come here to find my way into the team and win many things."
Isco will wear the number 23 shirt formerly worn by David Beckham, but he said he chose the number "because it's the day of my brother's birthday".
Meanwhile Real Madrid president Florentino Perez hailed Isco as one of the best players in the world.
Perez declared the 21-year-old was signed because he fits in with new coach Carlo Ancelotti's plan to "offer the best football possible".
He said: "We always look to bring the best players in the world to this club.
"We need players that respond to the very high level that this club demands and who are conscious of the large responsibility that comes with wearing this shirt.
"Therefore we are glad to present Isco as our player.
"We have signed a player who at just 21 years of age has already amassed a loyal following of fans due to his high quality. He's still a young player but he has shown he is prepared to compete at this level.
"He was named the Golden Boy in 2012, and has played for the Spain first team. He showed us what he was made of at the Under-21 European Championships, which he and his team-mates won for Spain, and he was a key player in Malaga's historic Champions League campaign last season."
The Golden Boy award is for the best young player in Europe. It was established by Italian newspaper Tuttosport and is voted on by sport journalists.
Perez added: "Isco, you arrive at a club which doesn't accept the word impossible, but we believe in you, your talent and your class. Here you are going to find unique footballers but also excellent team-mates."
Isco, who has signed a six-year contract with Madrid, declared: "I want to thank the efforts of the president in bringing me here. I have to say that for a player there is nothing bigger than being at Madrid, it is the best feeling, and I hope to enjoy myself here and make everyone happy here."