Don Quixote believes he has arrived at the lost city of the Moorish kings, Al-Azahara. In fact it is the castle of Oreja, next to its abandoned village.
Before this, the main street of the abandoned village is used when Quixote and Sancho follow a girl on a bicycle into a settlement inhabited by gypsies and illegal immigrants.
The ruined interior of the castle keep is used for a brief scene where Quixote taunts Sancho with his singing.