You can sleep in the majestic hotel that can be found in the grounds of the Alhambra Palace itself. It has a stunning view of the Sierra Nevada peaks and offers all the amenities and conveniences that you could dream of. There is another architecturally pleasing and impressive hotel nearby, named the Alhambra Parador. It is housed in a part-palace, part-mosque that was built in the 1300s. It is an extremely popular holiday accommodation option and you will need to book a room months in advance if you want to stay there.
There are many three to four star hotels in the modern part of the city of Granada. You can also find a number of hostals and pensions which are cheaper options than the hotels. These themselves, vary greatly in price depending on how much you plan to spend. They also vary in quality and it is worth checking them out before you book or following a recommendation from some-one you trust. Some are clean, modern and comfortable, while others may be grimy and rather unpleasant.
There are a number of pensions in the old Arab-Jewish quarter of Albaicin. The 17th century Casa de Alijarife is one of the most charming of these and it is fast becoming a sought-out accommodation venue. It is a fully modernized building, but it features an old-style interior courtyard with a Moorish fountain. It also has gorgeous views of the Alhambra. It is worth booking well in advance if you'd like to stay here as it is very small, but popular.
If you are happy to share, you can choose to stay in a youth hostel. One of these is the Avenida Ramon y Cajal. It has 230 beds divided into two and three bed rooms. It is also an appropriate accommodation option for those in wheelchairs as it has a number of specially designated wheelchair accessible rooms.
You can also choose to stay in a holiday rental apartment. These are self catering and may be a good option for families or large groups who would like a bit more space, freedom and privacy.
You can stay in one of a number of gypsy cave houses that produced some of the most fantastic flamenco dancers that the world has seen. The gypsy cave houses in El Sacromonte have all been converted into modern accommodation options. The cave houses in the countryside have been converted into a form of self-catering apartments.
Traffic in Granada seems to change regularly and parking is difficult so try to choose an accommodation option near to the sites that you will want to visit during your stay in Granada. Otherwise, at least make sure to choose a hotel that has off-street parking facilities.