The cities of Toledo and Granada are both in Spain. Toledo lies in central Spain, while Granada is in Andalusia in the country's south, at the foot of the Sierra Nevada.
Toledo is the capital of the province of Toledo and the autonomous community of Castilla–La Mancha. Its long history includes Roman rule, Visigothic kings, Muslim government, and Christian conquest in 1085. Because Christian, Muslim, and Jewish communities shaped the city, Toledo is often called the City of Three Cultures.
Granada is best known for the Alhambra, the palace and fortress complex built and expanded under the Nasrid dynasty. Granada was the capital of the last Muslim kingdom in Iberia until it was conquered by the Catholic Monarchs in 1492, the same year Christopher Columbus received royal backing for his voyage.
A common mix-up is Toledo, Ohio, in the United States. The question's pairing with Granada clearly points to the Spanish cities, making Spain the single canonical answer.