Toledo

The Toledo train station is a fair distance from the city center and would be easier to do without dealing with luggage both ways. I did it as a day trip from Madrid and found I had plenty of time. Someone with different interests - shopping, for example, might want more.

I've traveled to Madrid and Northern and Southern Spain regularily. I think you can definitely see everything you would want to see in Toledo in 1 day. There is a beautiful cathedral, a castle and several museums and shopping. You can take a bus from Madrid and easily see everything and make it back in one day. Toledo is about 1 hour or so by car/bus from Madrid. Toledo however takes on a different air at night it is beautifully lit and by far less touristy feeling. If you have the budget and time staying overnight one night in Toledo would be worthwhile to enjoy the feel of the city at night. Several great guide books are Rick Stevens Spain, Lonely Planet's Spain. Just read, read, read and make a plan of what you want to definitely see in Madrid and what you definitely want to see in Toledo. Check venues hours and if the venue is open. Many things are closed sundays and mondays. Also take student ids as there are discounts for students. Always ask.
Enjoy your trip try everything and know that you'll won't be able to see everything so pick and choose.

Stay in Madrid and go to Toledo on the ave train 1/2 hour. Stay overnight in Toledo if you can..Posada de Manalo is my favorite. I have stayed there seveal times and plan to do so again in April. There is a different feeling to the city when the tourist have gone. Lots of things to see, places to eat, etc. I like the RCA resturant near the Cathederal.

Toledo is magical at night, and the losing options there are much more interesting. Checknout the place mentioned by HJ, and also Las Casas de Los Mozarabes, which is a Moorish house divided into apartments, some of them 2 bdr.

We did exactly what you suggest and went to Toledo from the airport, spending our first night there. We took the bus from Madrid, but the train works too. It was the smartest move of our whole trip and I recommend it. The best part was at night. If you can't pack reasonably light then I guess the whole trip to the historic center business is a consideration, otherwise not at all.

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