Master of Reality was recorded at Island Studios in London from February to April 1971. The album was produced by Rodger Bain, who had also produced Black Sabbath's previous two albums, with future Judas Priest producer Tom Allom handling engineering. This was to be Bain's final collaboration with Black Sabbath as guitarist Tony Iommi took over production duties for the band's next several albums. Drummer Bill Ward explained: "Previously, we didn’t have a clue what to do in the studio, and relied heavily on Rodger. But this time we were a lot more together, understood what was involved and were more opinionated on how things should be done."
On the tracks "Children of the Grave", "Lord of This World", and "Into the Void", Iommi downtuned his guitar 11⁄2 steps in an effort to reduce string tension, thus making the guitar less painful for him to play. This pain was the result of a factory accident years earlier in which he had the tips of two of his fingers severed. The downtuning also helped the guitarist produce what he called a "bigger, heavier sound". Geezer Butler also downtuned his bass guitar to match Iommi. "It helped with the sound, too", Butler explained to Guitar for the Practicing Musician in 1994. "Then it got to the point where we tuned even lower to make it easier vocal-wise. But Ozzy (Osbourne) would then sing higher so it sort of defeated the object." In the 2013 biography of the band Black Sabbath: Symptom of the Universe, Mick Wall writes that "the Sabbath sound took a plunge into even greater darkness. Bereft even of reverb, leaving their sound as dry as old bones dug up from some desert burial plot, the finished music's brutish force would so alarm the critics they would punish Sabbath in print for being blatantly thuggish, purposefully mindless, creepy, and obnoxious. Twenty years later groups like Smashing Pumpkins, Soundgarden, and, particularly, Nirvana, would excavate the same heaving lung sound ... And be rewarded with critical garlands." In his autobiography I Am Ozzy, vocalist Osbourne states that he cannot remember much about recording Master of Reality "apart from the fact that Tony detuned his guitar to make it easier to play, Geezer wrote 'Sweet Leaf' about all the dope we'd been smoking, and 'Children of the Grave' was the most kick-ass song we'd ever recorded."
In the liner notes to the 1998 live album Reunion, drummer Ward commented that Master of Reality was "an exploratory album". Ward elaborated in a 2016 interview with Metal Hammer magazine: "On the first album, we had two days to do everything, and not much more time for Paranoid. But now we could take our time, and try out different things. We all embraced the opportunity: Tony threw in classical guitar parts, Geezer’s bass was virtually doubled in power, I went for bigger bass drums, also experimenting with overdubs. And Ozzy was so much better. But this was the first time when we didn’t have gigs booked in, and could just focus on making the album a landmark." In 2013, Mojo magazine called Master of Reality "The sound of a band becoming increasingly comfortable in their studio surroundings." Iommi believes the band might have become too comfortable, however, telling Guitar World in 1992, "During Master of Reality, we started getting more experimental and began taking too much time to record. Ultimately, I think it really confused us. Sometimes I think I'd really like to go back to the way we recorded the first two albums. I've always preferred just going into the studio and playing, without spending a lot of time rehearsing or getting sounds." The song "Into the Void" was especially problematic, with Iommi revealing in the same interview: "We tried recording "Into the Void" in a couple of different studios because Bill just couldn't get it right. Whenever that happened, he would start believing that he wasn't capable of playing the song. He'd say: "To hell with it – I'm not doing this!" There was one track like that on every album, and "Into the Void" was the most difficult one on Master of Reality." In his autobiography Iron Man: My Journey Through Heaven and Hell with Black Sabbath, Iommi describes the difficulty Osbourne also experienced recording the vocal: "It has this slow bit, but then the riff where Osbourne comes in is very fast. Osbourne had to sing really rapidly: "Rocket engines burning fuel so fast, up into the night sky they blast," quick words like that. Geezer had written all the words out for him ... Seeing him try was hilarious." The song "Solitude" showcases guitarist Iommi's multi-instrumental talents, featuring him playing guitar, flute, and piano. A delay effect was later added to Osbourne's vocals on the song as a means of doubling the vocal track.