The actual location of the city of Carcosa is difficult to determine, if, indeed, it has one single location at all. Carcosa is usually located on the shores of Lake Hali, or possibly Lake Demhe, sometimes described as lake-seas, and then only at certain times. These may be the ancient names for lakes that no longer exist in the same form.
The nebulosity of Carcosa, both in location and nature, is one of its defining themes.
In The Play
In the play Carcosa is implied to be a ghostly city or mirage that appears upon the far shore of the Lake of Hali from the city where the story's events take place, of which it may be some sort of reflection or archetype. The play is unclear as to Carcosa's physical reality or whether the two cities have an origin in the same world. The description of the play's setting indicates that it takes place on another planet or within another plane or dimension or a dreamworld. There are many moons, which appear to pass before the towers of the city, and twin suns that either set beyond Lake of Hali or fall into the lake and may be interpreted as orbitting the city rather than the world orbitting them. The sky is said to contain black stars that either somehow shine in the darkness of the night sky or else blink out of a bright daytime sky, perhaps both. Carcosa is said in the play to be the current or future home of the King in Yellow and located somewhere amongst the Hyades.
On Another Planet
Given the alien nature of the suns and stars, it is usually assumed that Carcosa is not of this earth, and its association with the Hyades has led to many sources assuming that it is located there. The setting of the play, and thus Carcosa and the King in Yellow, is often associated with the star Aldebaran.
Bierce's tale An Inhabitant of Carcosa places the ruins of the city on a planet from which the Hyades can be seen in the night sky above, clearly identifiable as such, implying this is Earth (or at least Earth as it once was). However, given that the Hyades is a name from Greek mythology, it seems likely that the city existed some time after the Classical period, or it is identified as such through some older name being translated.
Suggested real world locations include Arabia's Rub al-Khali region, and the Gobi desert. In addition, the name suggests a connection with Carcassonne in France. Philip Jose Farmer placed Khorkasa in Africa. Cold Case : Rona hints that it may be found in New Mexico, in the T'charcosa Badlands. In addition, the vagueness of city status for Hastur and Alar raises further questions of identity and location.
The Rest Of Your Life sets Carcosa in America as a sort of afterlife or spiritual trap.
Carcosa has much in common with the Dreamlands, the dream reflection of earth that draws unwitting people into its fantastic realm - one theory has it that Carcosa is one of earth's oldest dreams that's been stolen away from earth and exists somewhere in the void between the stars. The Dreamlands physics of an alien planet might better support the black stars of the play, or the images of Carcosa's spires rising high behind the moon.