McLaren-Honda had dominated the 1988 season to a historically unprecedented degree, locking out the front row ten times in fourteen races by the time the Spanish round arrived. The tight and twisty nature of the Jerez circuit offered more hope than most venues to the atmospheric-engined cars lower down the field, and qualifying results reflected this.
Off the track, the weekend featured a significant paddock announcement: Benetton confirmed that British Formula 3000 driver Johnny Herbert would join the team for 1989, replacing Thierry Boutsen who would be moving to Williams. The announcement was made while Herbert was still in hospital recovering from a serious accident at Brands Hatch six weeks earlier during the 1988 F3000 season. Alessandro Nannini was confirmed to remain, and Benetton also took up their option on Nannini for 1990, making him the team's lead driver going forward.
Senna claimed his eleventh pole of the season in fourteen rounds, with Prost just 0.067 seconds behind. McLaren had now locked out the front row for the tenth time in 1988. Mansell qualified third in the Williams-Judd, typical of the normally-aspirated cars performing well on this circuit — atmospheric cars filled grid positions three through seven. Gerhard Berger placed the best of the turbocharged Ferraris eighth, just 1.399 seconds from pole despite the engine disadvantage at Jerez. Nelson Piquet in the Lotus-Honda and Michele Alboreto occupied tenth and eleventh.
A notable incident occurred during qualifying when Riccardo Patrese, mid-way through a flying lap, encountered Julian Bailey driving on the wrong side of the track. Forced to abort the lap, Patrese retaliated by positioning his car ahead of Bailey and brake-testing the Tyrrell, sending it airborne into the gravel trap. Stewards initially appeared to blame Bailey and also summoned his Tyrrell teammate Jonathan Palmer, on the premise that the slower Tyrrells were a general nuisance in traffic. After a protest by team owner Ken Tyrrell prompted a review, officials reversed course and fined Patrese $10,000. Most in the paddock felt the punishment insufficient; one unnamed driver suggested Patrese should also pay the cost of repairing Bailey's car.
The Zakspeed entries of Piercarlo Ghinzani and Bernd Schneider failed to qualify, as did Julian Bailey himself, Oscar Larrauri in the EuroBrun, while Gabriele Tarquini failed to pre-qualify the Coloni. The Arrows cars of Derek Warwick and Eddie Cheever both made the grid but struggled, with Cheever only scraping onto the back row in 25th — slower than Nicola Larini's Osella, which had qualified 14th.
Prost made the stronger start from second on the grid. Mansell's Williams drafted past Senna to take second place into the first corner. On lap two Senna passed Mansell for second but ran wide, surrendering the position back. The top order then stabilized: Prost led Mansell by approximately half a second for the first 28 laps, with Senna holding third but under pressure from Patrese, Capelli, Nannini, and Berger in a train behind him. Michele Alboreto retired from Ferrari with engine failure on lap 16.
Around lap 30, Nannini, Berger, and Piquet all pitted for fresh tyres. Ivan Capelli, who had been the most threatening challenger, moved up to pass Patrese for fourth on lap 36 and then challenged Senna for third on lap 39, taking the position from the McLaren. However, Capelli's engine failed on lap 46, ending his challenge.
The critical pit stop phase ran from laps 47 to 51. Mansell pitted first on lap 47, but a stuck wheel nut cost him time and allowed Prost to extend his lead. Prost pitted reluctantly on lap 50 — believing his tyres had more life left — but accidentally engaged second gear rather than first when departing and was slow leaving his pit stall. Despite this, he retained his lead. Senna pitted on lap 51 and dropped outside the top six to seventh before beginning a recovery drive that took him through Gugelmin, Berger, and eventually Patrese for fourth on lap 65.
Nannini had used his earlier tyre stop to devastating effect, going fast on fresh rubber to pass both Patrese and then Senna for third place in a single lap — a notable achievement given Senna's defending reputation.
Prost won his 34th career Formula One victory, also setting the fastest lap. Mansell finished second, praising Prost in the post-race press conference and saying he had been "following the master" and that Prost "didn't put a foot wrong all race." Nannini took third for Benetton-Ford. Senna finished fourth, managing fuel readout problems in the closing stages and crossing the line with his gauge showing almost no fuel remaining. Patrese, who completed the entire race on a single set of tyres without stopping, finished fifth. Berger was sixth, also nearly out of fuel at the flag.
Prost's victory tightened the Drivers' Championship fight with Senna. The result demonstrated that despite McLaren's crushing technical advantage throughout the season, the internal rivalry between Prost and Senna produced genuine racing, with the Jerez circuit's particular characteristics allowing for a result that cut against Senna's pole-to-win dominance elsewhere that year.