If you come from Tulcan busses will probably drop you off at the Pan American highway, it's only a 10 minute walk to the center from there.
The Otavalo/Las Lagos bus company will drop you off at the bus terminal in Otavalo.
There is a small bus terminal northeast in town along calle Atahualpa & Jacinto Collahuazo and busses leave for Quito (2,5 hours) every 10 minutes.
Taxies will take you anywhere within town for $ 1,00.
Every Saturday there is a Mercado Artesanal in Plaza de Poncho on calle Sucre y Salinas where indigenous people come from far and wide to sell their handicrafts to tourists. Although Saturday is the main market day, purchasing handicrafts on any other day is possible and a far less hectic experience. If you want something more authentic, try the food market Mercado 24 de Mayo, it's the best place to buy pig's heads or intestines. There is also an animal market Mercado de Animales northwest of town across the panamaricana and a cockfight on Saturdays.
Plaza in Otavalo
Do not only come for the Saturday Market, there are too many things to see and do around Otavalo for just 1 day. See below at "Get out".
You might have a better chance to do your shopping if you arrive early, as early morning good luck sales are valuable here, and vendors seem to become les interested in the mid afternoon. Check out the prices in nearby shops before buying on the market too, as surprisingly, they are often better value.
Typical market products: 
Article about the market: 
When you are at the Saturday Market, eat at the Pie Shop. They specialize in HUGE hamburgers and sandwiches on hamburger buns. For dessert, have a slice of delicious and fresh pie. Depending on the day, they make strawberry, blackberry, pumpkin, apple, and chocolate cream pie. This renown restaurant is a mixing pot for travelers from all over the world.
Arbol de Montalvo Restaurant, Juan Montalvo 4-44 and Bolivar (in the back of Hostal Doña Esther), ☎ 06-2920739, . 18-21 weekends all day. Mediterranean styled food with a personal touch, using the local ingredients. We also serve typical Ecuadorian dishes and the pizzas are famous in town, made in a wood-burning oven. Safe water and organic vegetables.average $ 7.00.
Hotel Riviera Sucre, García Moreno 3-80, 06-980-241 (email@example.com). Has nice spacious room. A singlebed cost $7.
Hacienda Cusin, San Pablo del Lago, Imbabura, 6-291-8013. Restored 17th century estate 20 minutes south of Otavalo by taxi ($5). Excellent service, beautiful rooms and gardens, great food. World known Hacienda Cusin offers horseback riding, massages, Spanish lessons, and lots more. Rooms start at $75. Wonderful!
Hostal Doña Esther, Juan Montalvo 4-44 and Bolívar, 06-2920739. Checkin 13.00 checkout 12.00. Double room with private bathroom $ 36. Located near the Central Park and the Saturday market, Doña Esther is a colonial style, small and cosy hotel. All rooms are situated around a green inner court yard. The restaurant serves excellent food in Mediterranean style with a personal touch, using the local ingredients.
El Rancho (Indigenous Homestay), 8 Barrio Rancho Chico, Ilumán (Get off the Iluman bus from Otavalo (18c) at the Barrio Rancho Chico sign.), ☎ 0979 80742, 2946 092, . checkin: any time; checkout: any time. El Rancho is a large family home in Ilumàn, a village with a 100strong shaman´s association. It is 6 km outside Otavalo, which takes 15mins on a bus, and buses run every 15 mins. The warm and very friendly family are indigenous Otavaliños who have lived here for generations and sold jewelery and weaving on the market for 15 years. Esthela is a great cook of platos typicos, and usually prepares fresh food picked from the gardens of her nearby family. The views of Volan Cotacachi (4961m) from the huge roof balcony are amazing, and Imbabura (4610m) is directly behind the house. It´s a great place for hikers, birdwatchers, or language learners. See the website for a gallery of pictures taken around the area. $5-15. (0.2705373247971191,-78.23432922363281)
West of Otavalo at the base of Volcan Cotacachi and near Cotacachi Village. It is an eco reserve, with a lake in the crater of the volcano. Very pretty, with a lovely, but reasonably long, day walk around. Great views to Volcan Imbabura and Otavalo can be seen from there. To get there take a taxi to Cotacachi village, or take the bus from Otavalo terminal(20c), then hire a taxi from there.
Each of the small villages around Otavalo and Ibarra general specialise in a particular craft. Cotacachi specialises in leather goods.
A local speciality is Helados de Paila, or sorbet icecream. With beautiful fruit used to make the sorbet, it is a must for any visitor.
Amazing walking, and a much quieter pace of life just a 15 minute bus ride from touristy Otavalo. This indigenous village is truly charming. There are over 100 shamans in Ilumàn´s shaman´s association. They are famous for two types of work, one traditional botanical medicine, and more spiritual advice. The bus from Otavalo goes every 15 minutes from the terminal, and costs 18c.
There are a large number of villages surrounding, Otavalo, Ibarra, and Cotacachi. Each village tends to specialise in the manufacture of a one particular good, from the rugs, to Panama hats, to bronze busts.