Does anybody have suggestions for interesting towns/villages outside of Madrid that could be done by bus/train?
Toledo, Segovia, and Avila are all a short train or bus ride away from Madrid and could easily be day trips. Toledo and Avila are walled cities. Segovia has a intact Roman aqueduct, as well as a palace and cathedral.
Three less common suggestions: see the beautiful royal palaces and gardens at La Granja de San Ildefonso or Aranjuez; or the pretty university town of Alcalá de los Henares.
Toledo (#1 for me), Segovia and Cuenca are my favorites. Cuenca is viable as a day-trip only by AVE (fast train). The AVE fare to Cuenca is affordable if you get the ticket very early on. It's not what I would consider a financially-prudent day-trip if you're stuck with making a last-minute ticket purchase.
There's nothing wrong with Avila, but to me it's maybe a 2-hour stop, whereas my three favorites are worthy of overnight stays and will certainly keep you busy on a day-trip.
There's also El Escorial, which I haven't yet seen, and Salamanca. Salamanca works if you can manage the 8:55 AM ALVIA that gets to Salamanca at 10:31 AM. There's a return ALVIA leaving Salamanca at 6:20 PM and reaching Madrid at 7:56 PM. Salamanca is also large enough to justify being an overnight stop.
Two lower-key spots (and lower-priority for the typical traveler) that I enjoyed were the university town of Alcala de Henares (by Cercanias train) and the quite-small Chinchon (by bus).
Train schedules and fares can be explored on the Renfe website.
I agree with acraven. My take on El Escorial is the same as hers for Avila. It's a few hour stop. Once one has seen the crypt with the kings and queens, there isn't much else there. Up the road from El Escorial is the Valley of the Fallen. Together, they'd be a full day excursion.
If you go to the Madrid forum on TripAdvisor, on the right-hand side, there is a listing of all the possible day trips out of Madrid. It will give you directions on how to get there, a brief description of the sight, what to see etc.
Hey, I wanted to thank all of you for your suggestions. We are looking at all of them with great interest!!! John
Toledo would be tops and is really worth 1-2 nights. But a full day will give you an overview.
Try and see some of the more "minor" sites like the two synagogues (both in Mudejar design), and the Moorish mosque - converted into a church and using Visagothic decorations (also a Roman street excavated out front).
The train is fast but on busy days return trips do sell out so buy your tickets roundtrip if possible. There are busses that take you up the hill or you can take the escalators.
Segovia is worthwhile just for the Roman aqueduct but is a charming town with an impressive cathedral. The Alcazar is fine but completely reconstructed in the late 19th century. The AVE station is way outside town - city busses easily take you right to the main plaza at the aqueduct.
El Escorial is a massive palace that can be overwhelming if you are not into that sort of thing. But the route is linear and getting lost is not a problem. Just stroll through at whatever pace suits you. Best to go by bus, the station is just a few blocks from the palace.