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.

Another 130 people were wounded in what authorities said was a "premeditated, violent terrorist attack".
Four suspects were shot dead, one arrested and other are being sought Xinhua said.
City officials said evidence implicated militants from the western region of Xinjiang, but this was not verified.
President Xi Jinping and Premier Li Keqiang have sent condolences to the victims and their families.
President Xi urged "all-out efforts" to investigate the attack.
"Severely punish in accordance with the law the violent terrorists and resolutely crack down on those who have been swollen with arrogance," Xinhua quoted the president as saying.
Witnesses said that the men, who were mostly dressed in black, attacked people at random.
A survivor named Yang Haifei, who was wounded in the back and chest, told Xinhua he had been buying a train ticket when the attackers rushed into the station.
"I saw a person come straight at me with a long knife and I ran away with everyone," he said.
He added that those too slow to flee were cut down.
Some who escaped were desperately looking for missing loved ones.
Yang Ziqing told Xinhua she and her husband had been waiting for a train to Shanghai "when a knife-wielding man suddenly came at them".
"I can't find my husband, and his phone went unanswered,"  she said.
Social media users in China posted pictures of the attack on the internet, but correspondents say they are being taken down.
Images seen by the BBC show men and women lying on the floor in pools of blood following the attack.
Kunming officials, quoted by Xinhua, later said that evidence at the scene showed it was "a terrorist attack carried out by Xinjiang separatist forces".
Xinjiang is home to the Muslim Uighur minority group which has a long history of discord with Chinese authorities.
State broadcaster CCTV said top security official Meng Jianzhu would travel to Kunming to oversee the handling of the investigation.
Bolivian President Evo Morales has nationalised a Spanish-owned electric power company.
[NEXT_CONCEPT]
An attack by knife-wielding men at a railway station in Kunming in south-west China has left at least 29 dead, the state news agency Xinhua says.