Lençóis serves as a "base camp" of sorts for tourists from all over the world setting out to explore the Chapada Diamantina National Park.
Take a bus from the Salvador, Bahia bus station. It is across the highway from the Iguatemi shopping center. The ride is in a comfortable bus overnight. It takes around 6 hours so you arrive early in the morning. Real Expresso used to operate all of the buses on this route, now operated by a sister company, Rápido Federal. There are usually a couple of different times per day, but the night one is most popular. Be sure to take a jacket, scarf, or something for warmth since these buses operate with air conditioning at full blast.
Since Lençóis is a small, you can walk anywhere around town. To get out of town to see the sights in the Chapada Diamantina, book a tour and they provide transportation and guide. There are some waterfalls, swimming holes and natural slides on the outskirts of Lencois all at a walking distance.
Other than that the main attraction of Lencois the town serves as a good base for trekking trips into Chapada Diamantina National Park. There are day trips as well as longer treks of up to 5 days. The trips can be organized with a tour agency which takes care of everything including transport, guide food etc., but you can also buy a map of the park and venture out on your own. The tour agencies charge upwards of R$120 per day.
It is a wonderful experience being in that wilderness and if possible dont try to skimp on it even though it can be a bit expensive. The experience is every penny worth it.
The roads outside Lençóis are full of pot holes. Be prepared for a bumpy ride when you leave the town to go on tours.
You can rent a car for R$100 for 12 hours (200km limit) or R$150 for 24 hours (no km limit). This is a cheaper alternative for seeing some of the nearby attractions without booking through a tour agency.
Cachoeira Fumaça  is Brazil's 2nd tallest waterfall, even taller than Iguazu Falls (though not as wide). It is one of the main attractions in Chapada Diamantina, and can be either reached on a short 2-hour hike to the top, or to the bottom on a 3-day trek through Vale do Pati (more beautiful but requires more work).
Cachoeira do Diabo
Gruta da Lapa Doce
Gruta da Pratinha
Gruta Azul is a beautiful, multicolored cave that cannot be entered. A very short trip, just show up, take some pictures, and leave. Poço Azul is similarly beautiful and a better attraction because you can snorkel and spend more time there.
Morro do Pai Inácio
Note that many plates are by default "for two," and the portions are huge -- often the "for two" can be enough for 3 or even 4 people.
The cheapest place to camp in the city. R$15 per person or R$20 with an amazing breakfast. Located on the right side of the road that heads back towards the highway, right at the beginning of the paved road.
Probably the best place to stay in the town. The owner, Olivia, is an English lady who speaks fluent English and Portuguese. There are options of both dorms as well as private rooms. Rooms are pretty basic but you probably will only be there to sleep. The staff is very friendly and the atmosphere in the hostel is great. They also organize the trekking trips to Chapada Diamentina - Daily, 3 days and 5 days. Rua do Pires s/n, Lencois, Bahia 0(75)33341229
A five minute walk from the rodoviaria, across the river from the Praca. Ask where it is, but she usually comes to the bus stop to meet travelers, so if you ask there someone can point you in her direction. This pousada is run by a wonderful woman, Dona Maria Lurdinha, her husband Morato and her very friendly sister Meide with a wonderful loud laugh, and they all will make you feel at home. Some internet pages speak about the good breakfast, (some regional food, and daily fresh juice) but it suits more brazilians who like more sweet stuff, cakes and fried food. Many other places in Brazil have a better and healthier breakfast. Rooms are basic, very simple, with a balcony but no windows, though the price is cheap. Maria Lurdinha works with a local guide, LIO Tours, who is great and knows everything about Lencois and the Chapada Diamantina. But the problem is he does not speak anything but portugues (though he is learning English) and neither does anybody in the charming family running the pousada. Lio Tours can be cheaper than other travel agencies. One thing: be prepare for Maria Lurdinha speakinging very loud with other people or on the phone quiet often from the morning until evning, so not so easy to have a quiet time sometimes. But she is very charming and friendly. Sometimes is not so easy to use the kitchen to make your own food because the kitchen is used by Maria Lurdinha making food for the next breakfast. Rua Alto do Cajueiro s/n Lencois, Bahia 0(75)3334-1750
Rua Samuel Sales 28, Lençóis - Chapada Diamantina, Brasil Centro (10 min walk from the bus station, +55 75 3334-1624 www.pousadacoronadepedra.com Very nice, Family-run, friendly pousada. The breakfast buffet is excellent, all is self-made and self-backed. Simple doubles from R$60. Luxery Rooms for R$100. (Nov. 2011) Videopresentation from the buffet and others: www.coronadepedra.blogspot.com The Owner works also as tour guide. He will gladly take you to any tour. He is just the best! Thanks for the unforgetable time!
A hotel right on the river. Rooms are well appointed and comfortable. Most have a river view. This is the most expensive place to stay in town but it's most like an American Hotel. Canto das Aguas has a pool and lush gardens.
Ave Senor dos Passos, 01, Lenyyis, BA 46960-000 (75) 3334-1154 www.lencois.com.br
Vale do Capão - a small town on the other side of the national park. A completely different vibe from Lençóis.