Yes, You Can Stay IN The Alhambra
Well not exactly, but pretty darn close. Paradors are government-run hotels in Spain, many located within historic buildings like monasteries and castles. The Granada Parador is the old monastery of the Alhambra Palace and is located within the complex. While it's a bit of a walk into town, there's no better location. Tip #1: sign up for both the day and night tours of the Alhambra Palace (in advance) and just walk outside your hotel to the entrance. Tip #2: make sure to stay onsite for a meal (or five) - the Parador Restaurant is exceptional.
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Calle Real de la Alhambra, s/n, 18009 Granada, Spain
+34 958 22 14 40