Real are undefeated in La Liga since Barca beat them 2-1 at the Nou Camp in October and they are four points ahead of their arch rivals, who are one adrift of surprise packages Atletico Madrid in second, with 10 games left.
A victory for the champions at the Bernabeu (2000 GMT) would boost their chances of a fifth title in six years but defeat would almost certainly end their challenge.
"We will have to play an almost perfect match because that's what our opponent will demand of us," Iniesta told a news conference.
"We are in the right shape to do it," added the Spain international.
"It's a very important match for what it means for the standings, for the opponent and for everything around these kinds of games."
Barca have suffered some sharp criticism in recent weeks after surprise away defeats at Real Valladolid and Real Sociedad but Iniesta said they had no intention of tinkering with their trademark possession-based playing style.
"We have to be Barca, be courageous, if we are not we will suffer," he said. "We have to go out to play for the win as when we have done that things have gone well for us.
"We must have the same confidence we have always had before tackling these games. We have had bad days like anyone but nobody can believe Madrid will beat us easily."
Atletico visit bottom club Real Betis earlier on Sunday (1600). (Writing by Iain Rogers in Madrid editing by Tony Jimenez)