At calle Amaniel 28, Madrid (very close to Plaza de España), http://www.canasybarromadrid.es/, this beautifully atmospheric restaurant is probably the last one to make paella to perfection. This restaurant, whose chef is from Ontinent, in the quintessential paella region of Spain, was there already in the 80s, before Madrid became too cheapened a tourist destination and paella could be found just about anywhere.
I've tried many paellas around Spain and the world, and I cook a pretty good one myself. I've also tried other famous and atmospheric paella restaurants in Madrid (no names), and Cañas y Barro truly stands out over all of them without exception.
There are also other perfectly executed dishes, including a long list of starters, and other perfectly executed rice dishes, e.g. negret, abanda, etc. The owner and chef, Carlos, will take very good care of you and you will feel treated like royalty. Trust his recommendations on the wines too.
This restaurant is now very exclusive and Carlos opens only on week ends, so reservations are advised, especially for large groups.
You may mention that you read this review here (posted from London).
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