* In Laguna Beach, California, there are many beautiful hillside homes. (This uses commas to separate the location and makes "Laguna Beach, California" the focus.)
* In Laguna Beach California, there are many beautiful hillside homes. (This uses a comma to separate the city and state and emphasizes "Laguna Beach California" as a single entity.)
* In Laguna Beach, California there are many beautiful hillside homes. (This uses a comma to separate the city from the state and emphasizes "Laguna Beach" as the location.)
The best punctuation depends on what you want to emphasize.