Though Farinelli's success was enormous, neither the Nobility Opera nor Handel's company was able to sustain the public's interest, which waned rapidly. Though his official salary was £1500 for a season, gifts from admirers probably increased this to something more like £5000, an enormous sum at the time. Farinelli was by no means the only singer to receive such large amounts, which were unsustainable in the long term. As one contemporary observer remarked: "within these two years we have seen even Farinelli sing to an audience of five-and-thirty pounds". Nonetheless, he was still under contract in London in the summer of 1737 when he received a summons, via Sir Thomas Fitzgerald, Secretary of the Spanish Embassy there, to visit the Spanish court.

Apparently intending to make only a brief visit to the Continent, Farinelli called at Paris on his way to Madrid, singing on 9 July at Versailles to King Louis XV, who gave him his portrait set in diamonds, and 500 louis d'or. On 15 July he left for Spain, arriving about a month later. Elisabetta Farnese, the Queen, had come to believe that Farinelli's voice might be able to cure the severe depression of her husband, King Philip V (some contemporary physicians, such as the Queen's doctor Giuseppe Cervi, believed in the efficacy of music therapy). On 25 August 1737, Farinelli was named chamber musician to the king, and criado familiar, or servant to the royal family. He never sang again in public.

Farinelli became a royal favourite and very influential at court. For the remaining nine years of Philip's life, Farinelli gave nightly private concerts to the royal couple. He also sang for other members of the royal family and organised private performances by them, and by professional musicians in the royal palaces. In 1738 he arranged for an entire Italian opera company to visit Madrid, beginning a fashion for opera seria in the Spanish capital. The Coliseo of the royal palace of Buen Retiro was remodelled, and became Madrid's only opera house.

On the accession of Philip's son, Ferdinand VI, Farinelli's influence became even greater. Ferdinand was a keen musician, and his wife, Barbara of Portugal, more or less a musical fanatic (in 1728 she had appointed Domenico Scarlatti as her harpsichord teacher; the musicologist Ralph Kirkpatrick acknowledges Farinelli's correspondence as providing "most of the direct information about Scarlatti that has transmitted itself to our day"). The relationship between singer and monarchs was personally close: he and the queen sang duets together, and the king accompanied them on the harpsichord. Farinelli took charge of all spectacles and court entertainments. He was himself also officially received into the ranks of the nobility, being made a Knight of the Order of Calatrava in 1750, an honour of which he was enormously proud. Although much courted by diplomats, Farinelli seems to have managed to keep out of politics.

In 1759, Ferdinand was succeeded by his half-brother Charles III, who was no lover of music. Charles was the son of Elisabetta Farnese, who had never forgiven Farinelli for his decision to remain at court after Philip V's death, rather than following her into internal exile. It was clear that Farinelli would now have to leave Spain, though he was allowed a generous state pension. He retired to Bologna, where in 1732 he had acquired a property and citizenship. Though rich and still famous, much feted by local notables and visited by such notable figures as Burney, Mozart and Casanova, he was lonely in his old age, having outlived many of his friends and former colleagues. One distinguished friend of his latter years was the music historian, Giovanni Battista (known as "Padre") Martini. He also continued his correspondence with Metastasio, court poet at Vienna, dying a few months after him. In his will, Farinelli asked that he be buried in the mantle of the order of Calatrava, and was interred in the cemetery of the Capuchin monastery of Santa Croce in Bologna. His estate included gifts from royalty, a large collection of paintings including works by Velázquez, Murillo and Jusepe de Ribera, as well as portraits of his royal patrons, and several of himself, one by his friend Jacopo Amigoni. He also had a collection of keyboard instruments in which he took great delight, especially a piano made at Florence in 1730 (called in the will cembalo a martellini), and violins by Stradivarius and Amati.

His original place of burial was destroyed during the Napoleonic wars, and in 1810 Farinelli's great-niece Maria Carlotta Pisani had his remains transferred to the cemetery of La Certosa in Bologna. Farinelli's immediate heir, his nephew Matteo Pisani, sold Farinelli's house in 1798. (It later became the headquarters of a sugar factory, and was demolished in 1949, having been much damaged by bombardment during World War II.) Maria Carlotta bequeathed many of Farinelli's letters to Bologna's University Library and was buried in the same grave as Farinelli in 1850.

Farinelli not only sang, but like most musicians of his time, was a competent harpsichordist. In old age, he learned to play the viola d'amore. He occasionally composed, writing a cantata of farewell to London (entitled Ossequiosissimo ringraziamento, for which he also wrote the text), and a few songs and arias, including one dedicated to Ferdinand VI.

Farinelli lived in Bologna from 1761 until his death. The Farinelli Study Centre (Centro Studi Farinelli) was opened in Bologna in 1998. Major events and achievements include:

Farinelli's remains were disinterred from the Certosa cemetery on 12 July 2006. The stacking of the bones had degraded the condition of Farinelli's remains, but these included his jawbone, several teeth, parts of his skull and almost all of the major bones. Florentine antiquarian Alberto Bruschi and Luigi Verdi, Secretary of the Farinelli Study Centre, co-ordinator and general manager of the project, promoted the exhumation. The next day Carlo Vitali of the Farinelli Study Centre stated that the major bones were "long and sturdy, which would correspond with Farinelli's official portraits, as well as the castrati's reputation for being unusually tall." Maria Giovanna Belcastro of the Anthropology Institute of Bologna University, Gino Fornaciari, paleoanthropologist of the University of Pisa, and David Howard, engineer of York University are charged with deriving such new data on Farinelli and his lifestyle, habits and possible diseases, as well as the physiology of a castrato, as can be retrieved from these remains. Their research methods will include X-rays, CAT scans and DNA sampling.