I have been asked this question so many times now, that I thought I would display the answer on the site. I would also welcome suggestions by other people on the subject, which is:
What can I do and where can I go on New Year's Eve in Madrid?
This is what I normally end up doing if I find myself in Madrid with my wife, her family and our friends.
Many places in Madrid have private parties on that night - especially the nightclubs. Tickets are not that bad - around 40-60 Euros. However, I have only once been to one of these places and I would personally recommend that you do the following: Have a late dinner in a nice restaurant, preferably near the centre of the city as you don't want to be catching the Metro (I do believe it closes for an hour or two). Try and finish around 11.15 - 11.30. Head as near to the Puerta del Sol as you can. Make sure you buy yourselves a bottle of Cava (Spanish champagne) - I would personally ask the waiter in the previous restaurant to keep it chilled for you. You also need to buy twelve grapes and make sure that you eat them on the stroke of each chime at 12 midnight.
I would then head over to Plaza Santa Ana where you will find plenty of nightlife - and in the nearby streets such as calle Huertas. Try the Moderna, Cerveceria Alemana and Naturbier. You may want to explore the bars around c/ Principe, such as Viva Madrid. Don't be alarmed if the bars are closed - this does happen as it gives waiters and bar staff the chance to celebrate with their families. They will open at least by 1 am!
And finally, try and have a cup of chocolate in Cafeteria San Gines - preferably around 6 or 7 in the morning.
These are just some quick thoughts and I would welcome suggestions from other people on where to go in Madrid on New Year's Eve. Simply add a comment below.