The La Albirroja coach, whose team have never beaten the European champions, has already made history by taking the South Americans to the last eight for the first time.
And Martino knows his team have the ability to go even further.
"If I had to consider a tournament of 20 matches against Spain, then I think Paraguay would have fewer possibilities than Spain," he said.
"But you see in this kind of tournament, it's not just who plays better, but who has the heart, who has the stamina, the wish, who has the fighting spirit and it can come down to one scoring opportunity.
"I think in football you can expect any kind of result when you have to play 90 minutes, so I have no idea who will be in the next round."
Paraguay have enjoyed a memorable competition so far after an opening draw with Italy was followed by a victory over Slovakia and draws against New Zealand and Japan - the latter ending in a penalty shoot-out win.
But Martino is confident they still have more to offer.
He continued: "We have not had many good goal-scoring chances. We have had a few good moments, up to half-time against Slovakia we played well, we had our moments against Italy and then in the qualifying round we've had much better matches.
"We have not played too defensive matches either. We have had the same amount of ball possession as our rivals.
"There is a history yes, but we have to fight against this history and we just hope that tomorrow we can play better to have better possibilities."
Asked if he had any special plans to try and stem the attacking threat of the Spain, he said: "We could spend the whole night talking about how to neutralise the Spanish players, because you will ask me how to neutralise (David) Villa, then (Andres) Iniesta, then (Fernando) Torres and what have you.
"So we have prepared our match plan and we hopes it works out on the pitch."
Cesc Fabregas has no doubt his Spain team-mate Fernando Torres will soon be over his goal drought and is expecting the striker to play a key role against Paraguay.
The Liverpool forward has endured a poor campaign so far, failing to hit the back of the net for the European champions in their opening four games.
It came after an injury-hit domestic season for his English club, which him saw head to South Africa in the wake of a knee problem.
He has so far failed to live up to expectations and Fabregas said: "This boy is accustomed to this kind of situation.
"He's accustomed to all these situations because he's been under pressure ever since he was a little boy.
"He is very much at ease and I think tomorrow he will have a possibility to showcase his talents to see whether he can take this team to the highest possible ranks."
Arsenal midfielder Fabregas has hardly featured for Vicente del Bosque's side so far, making two brief second-half appearances in two of their games and completely missing out on the other two.
Asked how he felt the limited game-time, he continued: "The important thing is motivating yourself and believing that you will make it to the pitch, that you will be important during the match and you are really strong for the team.
"Because, perhaps you play, perhaps you don't play. You must be able to feel it that you will be able to do something in the match.
"If you are not being fielded, you must celebrate your friends and enjoy it."
Fabregas was also expecting a tough match against the South Americans.
"We're used to playing teams like this," he said. "Many of these players play in Europe we know them, so we're quite at ease.
"As we know, it is a very competitive team. They love to fight and they're going to fight to the end."
Brazil were knocked out of the competition by Holland and Fabregas insisted there would be no such repeat by the Spaniards.
The two-time European Championship winners, who are looking to reach the last four for the first time since 1950, had been major underachievers on the world stage until they claimed their second continental crown in 2008.
He added: "I think Spain has had sufficient lessons taught in the past.
"We know that in football anything is possible and if somebody has learnt something, it is Brazil."