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Based on three visits.

View of Toledo taken by our guide from 1999 visit, F. Garrido. (Now a postcard.)

This is a picturesque city, perched on a hill reachable on a day-trip from Madrid.  The former capital, there is no better way to learn about Spain's history than to visit Toledo.  There is very fine art, especially works of El Greco.  Walking the narrow and historic streets is the most memorable part of any visit.
Avoid the expensive tours from Madrid, if you can, because there is much to see and you will be rushed.  Inexpensive and comfortable buses leave every half hour from Madrid's Estacion Sur, Mendez Alvaro line.
Start your visit at the cathedral and work your way down to the views of the river.  At the cathdral shop across the street, buy tickets to gain admission to the special areas, including as the Sacristry, Chapter House and Treasury.  Definitely worth the price.  The cathedral itself is overwhelming, and I think that the overall impression is more important than the details.  Be sure to visit the "Transparente," the area behind the high altar where a window was added in the ceiling to bring in much-needed light.
There are three important Jewish sites, but during our last trip (2002), the first two out of the three were closed:  the Synagogue of Samuel Levy (also known as the Transito), the adjoining Sephardic Museum and the Santa Maria la Blanca synagogue.  Toledo in its golden age was the center to three co-existing cultures:  Moorish, Jewish and Christian.
You will want to visit the El Greco sites, including the Burial Chapel of the Count of Orgaz (at the foot of the Church of Santo Tome) and his home.  Expect crowds.
We found San Juan de los Reyes to be a fine and uncrowded place to visit, with its cloisters offering a welcome refuge from the crowded streets.
Visiting the Alcazar will take a lot of time.  My feeling is that the Alcazar of Segovia (and, of course, that of Sevilla) is more interesting, and that the Alcazar of Toledo can be omitted on a tight schedule.  Don't miss the cathedral.
The best restaurant in Toledo is said to be Adolfo's.  We did not have a chance to try it, but we found another fine place:  La Perdiz, Calle Reyes Catˇlicos, No. 7 (in the Jewish Quarter near Santa Maria la Blanca).  Also check out the "cricket restaurants"  the restaurants with a view of Toledo, outside the city.
I can't offer advice on hotels, because I have never stayed overnight in Toledo.  (This is my own unfinished business in Toledo:  Personal To-do List for Toledo

San Juan de los Reyes, Toledo. Photo by author.

Last updated November 2, 2002.