You don't want the gears in the transmission to move while you are towing the vehicle. Therefore, the transmission should be in gear (I put my Rubicon in 6th gear). If you have an automatic transmission, it should be in PARK.
I put my tranny in 6th gear so that IF the unlikely/impossible event should ever happen that the transfer case somehow got bumped into gear, the engine wouldn't be turning at some ridiculously high rpm while going 60 MPH in 1st gear! Apparently, that has happened to a couple of people, and it destroys the engine. Such an occurrence is extremely rare, though.