Mdina is in Malta.
Only inhabitants are allowed to take cars within the city walls, most streets are too narrow in any case, and it takes less than 10 minutes to walk from one end of the town to the other.
Mdina (pronounced em-dee-nah) means fortified place in Arabic and was first created as such by the Romans when they separated it from the rest of the town which became Rabat (which means Suburb) and fortified it. This place was already the principal settlement of Malta however since Phoenician times and hence can claim a heritage of 3000 years. Up until the Knights arrived in the mid 1500's it was the capital, the Maltese aristocracy lived there (some, like the Inguanez family still do uninterrupted for over 6 centuries), and the local governing organ called the Universita was housed there. Up until this day it is the seat of the Maltese bishop and the Mdina cathedral still takes precedence over the co-cathedral of St. John.
As the knights chose Birgu (Vittorosia) as their new capital the Great Siege of 1565 by the Turks was directed there and not at Mdina. The Turkish army passed by Mdina and could have easily taken the crumbling bastion which only had a small group of local soldiers and locals fit to guard it to stop them. A local nun had a vision however that called for a great procession praising god, and so every person in the town was dressed up and paraded around the top of the walls for hours giving the impression to the Turks that Mdina was full to the brim with defenders, and so they left it alone.
This decision proved fateful because just as the Turks had breached the main gate of Birgu a small band of Maltese rode down from Mdina, and started torching the deserted camp of the Turks making them think that they were being attacked from the rear and causing them to retreat in a panic. The breach was fixed and after that reinforcements from Europe finally arrived and the Turks were defeated. There is still a small chapel in Mdina in honour of this nun whose vision changed the course of European history.
Under the knights and even more so under the British the importance of Mdina as the seat of power faded steadily, and what was once known as the 'Citta Notabile' became the 'silent city', almost a ghost town. Today most of the palazzos belonging to the old aristocracy are being restored and the tourists bring life to the place, but there are only 400 inhabitants left.
The town itself is a joy to stroll around in, many of the alleys really give the sense that nothing has changed here for more than a millennium since the Arabs were here. The main attractions are the cathedral whose design inspired many of the other churches in Malta, the cathedral museum, and the views.
Walk around and take random turns in the maze-like alleys, the place is so small getting lost won't have you wandering for more than 2 minutes.