Many were from groups supporting victims of Eta, and brandished placards reading "Not in my name" and photos of those killed in attacks.
Socialist Prime Minister Jose Luis Zapatero has said he is ready to talk to Eta if they lay down their arms.
But many protestors said Eta should be defeated through robust police action.
No to terrorism
Eta has been blamed for the deaths of more than 800 people during a 40-year campaign for an independent Basque state in northern Spain.
The interior ministry estimated the number of marchers to be 100,000, while the march organisers said it was closer to 1.4 million.
"We want to make sure that [the government] does not negotiate with murderers and that terrorism is not seen as a way to achieve a political end," said Irene Villa, 27, who lost both her legs in an Eta bombing 15 years ago.
Eta has not killed anyone since May 2003 but has continued its bombing campaign.
With no signs of an Eta ceasefire, the opposition Popular Party says the government is playing into the hands of the separatists.
Not all victims' associations are against the government, says the BBC's Danny Wood in Madrid.
He says a significant number back Mr Zapatero and believe the only way to achieve peace is to hold talks with Eta if they definitively give up violence.
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