We have a rental car for 4 weeks to travel around Spain and Portugal. We will be visiting Toledo then driving to Madrid then continuing north. I know that driving into Madrid can be a nightmare, so I am considering parking the car outside Madrid and taking public transportation around Madrid. My question is where should I park the car?
You are right that you don't want to drive around Madrid - public transit is the way to go. However, it's not that bad to drive into and out of of you are used to city driving. If you find a hotel that has parking it's reasonable to drive to it and leave the car during your stay.
I am sure there are garages on the outskirts that would work but I haven't done it so can't suggest one.
I've also left the car in the free lot near the Toledo train station and taken the train. This makes sense only if you will be Toledo before or after and it's on your way. The cost of a round trip ticket might be offset by not having to pay hotel parking in Madrid.
I generally don't have a car in the city. On the one occasion I did have a car in Madrid, we parked in the hotel's garage (Melia Castilla). It will cost about 20-25 euro per day for parking. The city also has some parking garages. I know of one very near Atocha and literally next to the Reina Sofia museum, but don't know what it costs. If you're staying at an older hotel that has a garage, they are sometimes very small, narrow, and difficult to maneuver in since cars used to be much smaller as recently as the 1980s. Also, since you'll have a rental and if you leave it outside the city, ensure you have insurance for theft.
Once you have a hotel picked out in the city, if it doesn't have it's own garage, research where the closest one is. Then, do a Google drive by of it so you'll have an idea what it looks like and what's around it.
If you're flying into Madrid and then going to Toledo, take the train and rent the car when you leave Madrid.
Thank you all for your input. We drove to a parking lot close to Reina Sofia for under $13 USD a day. You have to reserve in advance online (www.parkapp.com), but it was very convenient when I got there. The hardest part was dealing with the Atocha traffic circle. This one was the hardest circle to deal with so far.