Pepe collided with teammate Iker Casillas in the 42nd minute when both tried to reach a cross in Madrid's area that led to Valencia's goal.
The two players remained prone on the pitch for a few moments. Pepe was replaced by Raul Albiol at halftime and sent to the hospital afterward.
Madrid says tests revealed no brain damage but that he would spend 24 hours under observation.
Madrid forward Cristiano Ronaldo says "(Pepe) is in hospital and we'll see how he progresses. He is an important player for us but his health is the most important thing."