The alley is located directly out back of Hank's house. It is the favorite hangout spot of Hank, Dale, Bill, and Boomhauer. The intro to the show always shows them in the alley, drinking Alamo Beer. Occasionally Kahn and Lucky get to join them in the alley. The location of Bill's house changes often throughout the series, sometimes seen across the street from the Hill residence, and other times across the alley. Sometimes Boomhauer can be seen arriving to The Alley from a fair distance away (Queasy Rider), so this may indicate that sometimes his house may change location.
The Alley appears on pretty much if not every episode of the show.
In the Season 7 episode The Texas Skillsaw MassacreDale, Bill & Boomhauer attempt to dig a tunnel under the alley. However, they were forced to stop digging the tunnel when Hank angrily ordered them to rush out of the tunnel due to an on-coming garbage truck, which fell through the road into the tunnel, thus almost killing the three characters.