In Spanish the gender of the word ciudad is feminine. The correct sentence is: Madrid es hermosa (Madrid es una hermosa ciudad). In the other hand, I think it's possilbe to say Madrid es hermoso. It doesn't sound strange in my Spanish ears.

When you use the masculine gender, you are mentioning the word as a place. Then you can say "Madrid es (un lugar) bonito". And when you use the feminine gender, you are mentioning the city, "Madrid es (una ciudad) bonita". So you can use both genders, depending if you are talking about a place or about a city. The gender of a place is masculine (el lugar), the gender of a city is feminine (la ciudad), and the gender of a country is masculine (el país).

Technically, the cities that end in -a are exclusively feminine, so you CANNOT say "Barcelona es hermoso". You must always say "Barcelona es hermosa". As for the cities that end in other letters, they're considered masculine, so you can say "Madrid es hermoso", "Moscú es hermoso", but sometimes "la ciudad" is omitted, so you can say "Moscú es hermoso" but also "Moscú es (una ciudad) hermosa".

Madrid es hermoso (Madrid es un hermoso lugar)