Mr Morales ordered the military to take over the subsidiary of Spanish power company REE, which owns and runs around three-quarters of Bolivia's power grid.
Mr Morales said he had ordered the move in honour of the Bolivian people fighting to regain control of their natural resources.
Last month Argentina took control of Spanish-owned oil company YPF.
Speaking at a May Day ceremony, President Morales said that "in honour of all Bolivian people who have struggled to recuperate our natural resources and basic services, we are nationalising Transportadora de Electricidad (TDE)".
'Failure to invest'
He said he was expropriating the company because it had failed to invest sufficiently in Bolivia.
Spanish power company REE bought 99.94% of shares in TDE in 2002. The remaining 0.06% are in the hands of the Bolivian employees of TDE.
TDE owns and runs 73% of the power lines in Bolivia, providing 85% of Bolivians with electricity, according to the company's website.
Mr Morales did not say how the Spanish company would be compensated, but in his decree he stipulated that the state would negotiate a payout with REE.
TDE's nationalisation is the latest in a series of expropriations decreed by President Morales.
On May Day 2010, he expropriated four power-generating companies.
One of them, British electricity utility company Rurelec, is currently seeking compensation for the take-over at the Permanent Court of Arbitration in The Hague.
Spanish government officials said they were still gathering information about the move, but said it was different from Argentina's takeover of Spanish-owned oil company YPF just over two weeks ago.
Spain reacted angrily to YPF's nationalisation, threatening retaliation and rallying international support against it.
Bolivian President Evo Morales has nationalised a Spanish-owned electric power company.