I am intending to drive from Madrid to Porto and then to Lisbon. I like sight seeing so I guess there will be lot of things to see. Is there any better option. Suggestions please

Are you driving your own car? Taking your rental back to Madrid?

If not, check the drop-off fee, then consider taking the night train from Madrid to Lisbon and renting a car there. See http://www.seat61.com/international-...Spain-Portugal

What do you want to see between Madrid and Oporto? Whatever you decide do not rent the car until you leave Madrid and then drop it off immediately when you get to Lisbon.

The drop off fees from picking up a rental car in one country and dropping it offf in another can be hundreds of dolalrs.

At this point a guidebook might be useful.

The advise about picking up a car in one country and dropping it off in another is not so good. The repatriation fees are horrendous. You must return the car to the country where you hired it in to keeps costs down.
When travelling in Portugal please ensure you know how to pay for the electronic tolled roads. The method will depend on whether you hire a Spanish or Portuguese car.
When is this trip planned for?
How long is it going to take you?
What are our interests?

Thank you for your replies. I will pick up the rental in Madrid and return the car in Madrid. I like to see beautiful things and also like history and that is the reason why I want to drive. I do not know which route will be interesting for me. I am planning to visit Spain/Portugal from 28th May to 10 June 2014. I also want to visit Barcelona.

Any advise?

In two weeks you will barely have the time to visit the western part of Spain and whatever part of Portugal you choose. Barcelona is in the opposite direction. I would forget about it.

Do you arrive on the 28th and leave on the 10th? If those are travel days you only have 12 days, and you will need half of those for Barcelona and Madrid. Either settle for Spain, or take the train to Lisbon, where it is easy to spend six days split between Lisbon, Belem, Sintra, Cascais, Estoril and Obidos, possibly including Evora. You do not need to drive to see beautiful things, and certainly not to see history, which is in the cities.

Belém = Lisbon