Laudrup has drawn plaudits from across Europe for his work at Swansea, which saw the Welsh club win their first major trophy by lifting the League Cup last weekend.
Toshack believes that Laudrup has an aura similar to Johan Cruyff but is unsure whether the Danish coach would be a success at the Bernabeu.
He told the Daily Mail: "It is entirely understandable that the Swansea boss is being looked at by Real Madrid, where Laudrup played from 1994 to 1996. I know they are looking at him. There is interest. But would Laudrup want to break one of football's perfect marriages?
"I don't know, management is funny. The chance to manage Real Madrid doesn't come along too often but he is a man of principle. He had issues at Mallorca and wanted to quit but wouldn't walk out after a defeat. He waited until the team had won a game.
"When I look at Swansea City's boss these days, I see Cruyff. They were both wonderful players and the similarities as managers are stacking up. Just like Cruyff, Laudrup has an aura."