Mercedes blew up Hamilton's chances after a needless pitstop; Rosebrg only 4th driver to claim Monaco hat-trick.
Rosberg, winner from pole for the past two years in the principality, qualified second.
Lewis Hamilton ends rumours of Ferrari move by signing 3-year $ 140 million extension with Mercedes.
With a win at the Spanish GP, Rosberg reduced the Formula One world championship lead to 20 points.
Rosberg ended teammate's qualifying stranglehold on Saturday when he secured his first pole position of the season.
Organisers said in a statement it would "condense the season," which finishes in November.
It was a high-scoring thriller but Madrid managed to hang on to their lead till the referee's whistle.
Mick made his single-seater debut on Saturday with the world's media in attendance.
Hamilton finished first, ahead of Ferrari's Kimi Raikkonen and his Mercedes teammate Nico Rosberg.
Lewis Hamilton took the fourth successive pole this season; Sebastian Vettel to start second.
Rosberg topped the timesheets with a best time of one minute 34.647 seconds on soft tyres.
The hostess, graduate of Shanghai Institute of Visual Art, said that the incident has been blown out of proportion.
Hamilton has won 8 of last 10 races and Rosberg has been unable to assert himself in qualifying either this year.
The Mercedes pair pulled clear of Sebastian Vettel's Ferrari right at the start of the race.
Hamilton, unbeaten in qualifying so far this year, lapped in one minute 35.782 seconds.
Mercedes are now fully aware they have a real title fight on their hands.
Motorsport's governing body has given a lukewarm response to Ecclestone's suggestion.
Hamilton, who won the first of his two titles with McLaren in 2008, is one of the three highest paid drivers in the sport.
Ferrari last won a race way back in May 2013 in Spain.
Sebastian Vettel proved Ferrari's impressive early-season form was no fluke with a solid second place.
Red Bull has warned that the team could pull out of F1 unless changes were made to the current regulations.
For Sebastian Vettel the podium spot felt like a victory on his Ferrari debut in the Australian grand prix.
Lewis Hamilton beat Nico Rosberg in a one-two finish for Mercedes at the Australian Grand Prix on Sunday.
The Briton recorded a fastest lap of one minute 26.327 seconds, trouncing Rosberg by nearly six-tenths of a second.
Besides driver safety, F1 has been rocked over the last 12 months by its latest monetary crisis.
Schumacher's son Mick finished second in the German kart championship last season.
Nico Rosberg says he is ready to take on champion Mercedes teammate Lewis Hamilton.
Nico Rosberg won five races last year to Lewis Hamilton's 11 and finished runner-up last season.
Vettel, who has replaced Spaniard Fernando Alonso in the lineup, joins Finland's 2007 world champion Kimi Raikkonen.
Spain's Fernando Alonso willl be driving for Mclaren while Sebastian Vettel will replace him at Ferrari.
Horner said it would take time to get used to seeing Vettel in Ferrari's red.
Red Bull will rely heavily on the Australian as Sebastian Vettel is all set to drive with Ferrari.
Five grands prix's will start an hour earlier this year under recommendations made after Jules Bianchi's crash.
Lewis Hamilton is yet to sign a deal with the Mercedes despite winning the 2014 season with them.
Schumacher suffered severe head injuries in a ski accident in Meribel in the French Alps on December 29, 2013.
Sixteen year old Jehan Daruvala has signed a one year contract with Fortec in Formula Renault 2.0.