Chelsea's interim manager lost his second game in succession as goals from Karim Benzema and Marco Asensio gave Real Madrid the initiative going into the second leg at Stamford Bridge.
Chelsea's task at the Santiago Bernabeu became harder when Ben Chilwell was sent off for a professional foul on Rodrygo Goes.
Lampard has opined that some of his Chelsea players are lacking confidence at the moment but believes their quality can come to the fore when it matters most.
As a player, Lampard was involved in many great Champions League nights at Stamford and does not see any reason why Tuesday cannot be added to the list.
"I'm proud of the 10 men," he told BT Sport. "I think with 10 men, they carved us open. There are some good things, but the result is the reality.
"I just said to the players [in the dressing room], special things can happen at Stamford Bridge. They're a very good team, but we have to believe."
"It's been a difficult period for them. There is a little bit of a lack of belief. I think they players have got to understand how good they are and what they can do.
"Maybe we're a little bit short on that [self-belief], Next week is going to be a fight. There are some mindsets [where] we have to be much more positive.
"I've been involved in those nights at Stamford Bridge. That's next week now, and I'm disappointed with the result, [but] we keep going."
Chelsea take on Brighton and Hove Albion this weekend before Tuesday's game against the European Champions.
