Granada is the oldest colonial city in Nicaragua and the entire Western Hemisphere, it is also the all-time-rival of Leon. It is located on the upper side of the Lago Cocibolca. Its colored colonial buildings, the interesting history and its relative safety make it more and more important for tourism.
Nicaragua is the second poorest country in Latin America, therefore it is important to support the local Nicaraguan economy. Purchase local products (beer, food, etc.) and support Nicaraguan owned businesses.
There is a small airport a few miles from Granada on the highway to Masaya. The airport was served only by Nature Air, which offered flights from San Jose and Liberia, Costa Rica, the flights have been suspended until further notice (due to lack of passengers). It's less expensive to land in Managua (the capital of Nicaragua) and from there make your way by bus (every half hour from Mercado Huembes or the La UCA station) or taxi (around $35 from the airport). Alternatively, flying into San José, Costa Rica's capital, can be a cheaper option. From there, bus connections to Granada and rental cars are available.
The old train that once existed was shut down during the era of Violeta Chamorro. So, no, there's no possibility to take any train to get there.
Yes you can get there by rental car, which is often really expensive to hire, since imported cars are expensive too and the risk of theft is high. The roads are better than in Costa Rica, especially since a bit of time ago, the government made an effort to improve a lot of the main roads, still be aware that many times, especially in rainy season, streets that are a bit off the beaten path can become very difficult to drive or simply disappear.
From Costa Rica, take the Panamerican Highway, which leads from San José through Liberia, the border crossing at Penas Blancas, first bigger town in Nicaragua is Rivas, and then goes on directly to Granada.
From Costa Rica
There are two main options, either take the chicken buses which are slightly cheaper and fuzz your way through, experience a lot of interesting sights and the heat or hop on one of the (often agonizingly) air conditioned coaches, which are comfortable, take you there in about 8-10 hours (bordercrossing might take a while) and cost US$15. The best options going from Costa Rica to Nicaragua are Central Line, TransNica and TICABUS. Back from Granada to Costa Rica you might as well take the NICABUS. Just ask any taxi driver in San José to take you to the TICABUS-station.
From Managua, direct shuttles leave when full from the UCA terminal (University of Central America) for around C 18. From Leon, catch a direct Leon-Managua-UCA shuttle (again, the shuttles leave once full from the terminal in Leon) for C 25.
There's a boat running twice a week from San Carlos (Costa Rican Boarder) via Ometepe to Granada and back.
Granada everything is comfortably reachable by foot.
Local taxis work on set prices: 7 Cordobas, after 9pm 10 and at night 15-20 Cordobas per person, wherever you go within the towns borders.
Buses (old stylish US or Canadian schoolbuses) go just about everywhere at about every time, you see them and if you slightly look like anybody wanting to go anywhere, be sure they'll load you on their bus. Another option are the mini busses which have a bit more set time and you can book in advance, they're more comfortable but cost a bit more.
Horse carts are something else, ancient and useful and found everywhere but often the horses are so worn out that you should seriously ask yourself if you want to contribute to their suffering.
There are several low-budget Spanish-schools in Granada, the local Red Cross is a good option to go, since you can buy 1 on 1 Spanish lessons from them and so support them. For more options look around for flyers.
There are local guides too, that will show you around town or the area and tell you of the interesting history of Granada, one is called Gioconda, a very nice lady, that always takes her little traditional dress and umbrella around town, she sits everyday in front of the Hospedaje Central. Her office is at Cafeteria Taza Blanca - Tel 552 2876 or mobile phone 874 7822.
There's a volunteer-opportunity. See it at "Do". Local hostels and foreign-owned shops are sometimes looking for English-speaking people, well underpaid normally though.
Granada is known around the world for its high quality rocking chairs which can be seen all around town. The main vendor's a bit out of town on the road to Masaya.
If you want to go cheaper, there's the option to buy local and famous Nicaraguan pottery, which you can buy in town (very nice choice: Dona Conchy's, a restaurant which also has a little sweet store in the back, where they sell very nice pottery, handmade by the owner), but the better option is to go to Masaya where there's a bigger choice and the prices are lower.
Also very typical are the hammocks, there are tons of hammock stores and factories in Masaya, but you can also get them in town for a bit more money.
There's tons of street-vendors, selling Hot-Dogs, revueltas, carne asada, or local specialties such as Gallopinto (Rice & Beans), Fried Plaintains, Nacatamales, Bajo (yuka, plantain, beef mix). You can have it all between 1 and 15 Cordobas. But keep in mind that the standard of cleanliness can vary. The local specialty is Vigaron: fried pork rind (or roast pork) on mashed yuka for C 25 from the kiosks in the parque central. Great value (provided you are not a vegetarian).
Great drinks can be purchased from local vendors at the corner in Parque Central, such as linenseed-drink, or red beet drink or anything else, completely overloaded with sugar mostly though. Nice alternative: The local "Cacao" drink, milk and powdered Chocolate beans, but not quite like hot chocolate, available in most coffees. Also "Raspados" are very delicious and usually have vendors around the Central Park.
And then of course, the local coffee!! You have the biggest range, organic, shadegrown, fair trade, ...
In general, Granada is much safer than a lot of other cities in Nicaragua, if not the safest, because of its touristic state. But of course there's always a risk, since it's a poor country and tourists can be an easy way to get a bit of money. In general, try not to walk alone after dark and avoid especially the area around the lake in later daytime and at night, the outskirts as well.
You will be very sure to run into a lot of street kids or beggars that will ask you for some money or food or anything. Yes they might just buy glue to sniff from it, yes they might lie to you in order to get some money (e.g. my mom is really sick, she needs medication, ... ). Still they need the money. Although it's a question whether supporting more sustainable help instead might help those people more than going with that begging thing. Although when you're in a restaurant, and have left-overs, you might as well invite that street-kid hanging around your table or just buy him a meal beforehand. It's a good idea to buy chewing gum from the street kids even if you don't need it, as it's helping them to make a living without having to resort to begging.