Madrid's leading scorer Benzema - who has netted the club's last eight LaLiga goals - may miss the rest of the season with a hamstring injury, and without its talisman to rely on, Los Blancos put in a tame display at Estadio de Vallecas.
VAR played a crucial role in Rayo's first victory over Madrid since 1997 - referee Pablo Gonzalez Fuertes changing his initial decision not to award the hosts a penalty for a foul by Jesus Vallejo.
Adrian Embarba duly slotted home from 12 yards and Rayo's lead was hardly threatened as Madrid succumbed to a defeat that all but ends their hopes of finishing second.
Mariano Diaz, in for Benzema, saw an early chance blocked by Abdoulaye Ba, while Thibaut Courtois denied Jose Pozo an opener at the other end.
Javi Guerra looked set to prod home a wonderful Alex Moreno cross soon after, only for Vallejo to get there first.
However, after initially letting play to continue - Gareth Bale seeing a one-on-one effort saved by Alberto Garcia in the intervening period - the referee brought the play back and, after consulting with VAR, deemed that Vallejo had in fact dragged Guerra down, with Embarba making no mistake from the resultant spot-kick.
Embarba almost caught Courtois out with a cross-shot shortly after the restart, before Madrid's goalkeeper made a smart stop to deny Bebe.
Garcia reacted sharply to keep out a dipping Bale free-kick with 20 minutes remaining, but that was all Madrid could muster as Rayo held firm to secure a famous victory and boost their slim hopes of survival in the process.