We stayed in Ladron de Agua in August 2007 during our three week travel in Andalusia and we consider it the best hotel we found(more than a couple of 4/5 star rated hotel, much more expensive!).
The service and the rooms were excellent, and the breakfast too.
We lost our baggages (do not fly with Vueling!) and they were extremely kind and help us to solve the problem.
Definitely, a place in which we would return.

A terrific location in the most picturesque part of town, and an easy walk to all sights (even the Alhambra, around 15 minutes, straight uphill, on foot). We liked the "medieval Islam meets modernity" decor in the rooms and the public spaces, though this is not a typical Andalusian hotel by any means. But if you are looking for something a little more chic (read: Barcelona or Basel, not Seville) this might be just the ticket -- the marble foyer is striking, as is the dark wood in the bedrooms. Our only real complaint was the breakfast: around 10 euros for a lousy selection of rather stale bread, and only one cup of coffee apiece (when I begin eating dinner at 8:30pm, as is customary in this part of the world, I am certainly going to need that extra cup...) So, caffeine addicts aside, I'd recommend this hotel on the basis of a terrific location and a rather off-beat, elegant feel. Just don't try to drive here -- the street it is on is so narrow that even if you find it (a big if, even for master map-reades) you won't be able to park. Drivers should park in "new" Granada and take a cab (it should cost no more than 5 euros).

Have just returned from a 2-night stay in El Ladron and have to say that I was somewhat disappointed - it was the most expensive of four hotels stayed in on this trip and offered least. The staff are absolutely excellent - friendly, informative and helpful but there are just not enough of them, in small hotels like this I don't expect room service but over two days I didn't see anyone having so much as a glass of water in the lobby/library areas - these are very nice public areas but because there are no services available just don't seem to be used. I'm sure hotel management will point out the presence of a small cafeteria/bar area but when it's unstaffed and the only person available is on reception and dealing with phones & guests it seems unfair to request coffees/drinks. A minibar in the bedroom might have alleviated this somewhat but there wasn't one.
The bedroom, el regreso, was pretty nice furnishings-wise but you could hear absolutely every word said by the people in the room next door. And when they used the hydromassage bath I thought a drill had gone off on the road outside... Also, the bedroom was quite small for the price - we had two suitcases but nowhere to store them and they and our various toiletries scattered around pretty much ruined the boutique look.
This place is aesthetically lovely and with very nice staff. It's in a great location. But I really think it's too expensive and should be more properly categorised as an upmarket guest house. Basically my expectations, from both the hotels website and the reviews of others given below, just weren't met.

Stayed there with friends over Easter weekend for 4 nights. The hotel
has a LOT of character, and is very conveniently situated in Granada:
on the Darro river in Albaicin, with views of the fortress towers of Alhambra (which are located on the hill way above the hotel), but also a few meters from the bus stop to Alhambra and minutes walking to the cathedral and city center. The hotel is an XVI century building very successfully restored, with a lovely courtyard. The rooms are tastefully decorated and are very comfortable. During our stay, we had to have breakfast at the hotel with the extra charge of 9 Euros. It was excellent value for money. Delicious buffet with cheese, Spanish omelette, dry hams, delicious jams, and a nice selection of breads and bakeries + freshly squeezed organge juice and of course teas and coffees. Hotel staff were all very helpful with tips on where to eat (carrying out bookings where needed), and things to do, and the processions to see (it was during the Semana Santa). The hotel also has a lovely reading room, with plenty of interesting books, a lot of which in Spanish, but with some in English and French as well.

The hotel rooms are named after poems, and the walls of the galleries around the courtyard are decorated with black and white photos of Granada with matching verses of poetry in Spanish and English. Worth going round and reading them.

If I had something to suggest to make the hotel even better it would be: some English/French speaking channels on TV, and more lighting in the breakfast room.

All in all we had an excellent stay in this stylish hotel.