Morales (45-1, 28 knockouts) caught Espadas (37-6) with a hard right hand to the ear at 2:58 of the third round at Staples Center. The victory moves Morales to an anticipated WBC super featherweight title shot early next year against Jesus Chavez.
On the undercard, Carlos Hernandez retained his IBF Jr. lightweight belt by a decision over Steve Forbes in 10 rounds after the bout was stopped by the ring doctor.
Colombian Daniel Reyes became the new IBF strawweight champ by knocking out Mexico's Edgar Cardenas in the sixth round while Rafael Marquez of Mexico City retained his bantamweight belt with a unanimous decision over Colombian veteran Mauricio Pastrana.
Notable deaths of 2014 [PHOTOS]
Michael Sam cut from the Dallas Cowboys