Currently known as Barajas, the airport's full name will change to Adolfo Suarez, Madrid-Barajas, the Public Works Ministry said in a statement.
Suarez, who died on Sunday aged 81, led Spain to democracy after four decades of dictatorship under Franco and helped draft its 1978 constitution — a process known as the transition.
The airport will be renamed to "honour his memory" and acknowledge "the historic role of the first prime minister of our democracy," the ministry said.
"His moral stature and sense of the state were key to the success of the transition and of the democracy."
Suarez died in Madrid after suffering from Alzheimer's disease for a decade.
The government called three days of mourning and thousands of people queued on Monday to file past his coffin in the lower house of parliament.
Suarez was to be buried on Tuesday in his home town of Avila before a state funeral on March 31st in Madrid's Almudena Cathedral.