The 27-year-old former Manchester United target has joined Monaco on a one-year loan deal.
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.”
Coentrao made just nine appearances for Real Madrid in La Liga last season.
A statement on Real Madrid’s official website added: “Real Madrid and Monaco have agreed to the transfer of player Fabio Coentrao until June 2016.”
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The start of the 2017-18 Premier League season is just around the corner and is shaping up to be one of the most competitive yet.
As always it is the so called “big clubs” that have splashed the most cash in the transfer window so far this summer. Manchester United or City? Arsenal or Tottenham? Who are the winners and losers of the transfer window so far?