Early one Saturday morning, I stepped into an antiques store near Madrid’s Plaza de Santa Ana. Flipping on lights as he went, the owner led me from a room lined with Impressionist-style paintings to another showcasing a Baroque altarpiece. Finally we reached the back. The light went on, and I found myself face to face with an El Greco. The owner pulled out papers from a former director of the Prado Museum authenticating the work, and told me he was beginning the verification process.

“It’s very possible that it was authentic,” says Manuel Merchán, editor of the Madrid-based magazine Antiqvaria. “Until the early part of the 20th century, the court was in Madrid, and all the great aristocratic houses are still based here. Every now and then the heirs of a family put a major work on the market.” That’s the beauty of Madrid. Although it is rapidly catching up with longtime rival Barcelona as an important center for contemporary art and design (witness the hotels designed by cutting-edge architects and the red-hot ARCO contemporary art fair), the capital retains its Old World charm.

The fact that Madrid is promoting its historic laurels while refusing to rest on them is nowhere clearer than in the “Golden Triangle,” which contains its three big museums: The Prado, The Thyssen-Bornemisza and the Reina Sofia National Art Center. In the past few years, each institution has remade itself. At the Thyssen-Bornemisza, which lavishly traces European painting from Fra Angelico to George Grosz, a new wing has created space for blockbuster temporary shows. At the Reina Sofia, dedicated to modern and contemporary art, the Jean Nouvel–designed expansion has given the museum an extra 30,000 square meters with which to display its permanent collection and also made room for Michelin-starred chef Sergi Arola’s eponymous restaurant. In October, the Prado opened its own new wing, designed by Rafael Moneo around the old cloister of the San Jeronimo church for temporary exhibitions. (Recommended accommodation: The Hotel Urban, which is packed with Asian works from owner Jordi Clos’s personal collection, including of Egyptian antiquities in the basement.)

There are other signs of a renaissance. Conservators at the San Antonio de la Florida hermitage recently finished 16 years of restoration, unveiling gorgeously reinvigorated Goya frescoes populated with the gossipy majas and frolicking children that the artist loved to paint (Goya himself—minus his head, which mysteriously disappeared—is buried in the church). The top floor of the San Fernando Academia de Bellas Artes opened to the public in October 2006, displaying etchings by Picasso and paintings by Gris. And while the massive Matadero contemporary art center (housed in the old city slaughterhouse) awaits completion of its exhibition space, it has begun staging concerts and plays in its performance halls.