Traveling to Otavalo is done by bus. It’s located about two hours from Quito and three hours from the border at Tulcán. If traveling from Quito, you will have to use the Carcelén terminal in the north of the city. From Tulcán, it’s best to take a bus to Ibarra and change from there. Buses from Tulcán to Quito don’t stop at the Otavalo terminal.
If you plan on staying overnight, I can recommend the Hostal Otavalo Prince. It’s a little overpriced for what we got at US$45 per night, but that’s to be expected in such a touristy place. The room was very clean and comfortable but a bit small. Breakfast was included in the rate. The free wifi was decent. The location is excellent, just a short hop from Plaza Bolívar.
For dinner, we ate at Mi Otavalito, just off Plaza de los Ponchos. It’s a touristy place and a bit overpriced as well, but the food was delicious. They serve some local dishes as well as international cuisine. Try the cream of avocado soup.