Most of the best and charming restaurants in the Xiaguan/Dali area are in the ancient city (Dali Gucheng), where the town is mostly inhabited by ethnic Bai people. The local Bai people still boast some distinguishing characteristics, their Bai cuisine being an important aspect of the culture. Some  famous Bai dishes are earthenware pot fish, the "three cups of tea" and milk fan, a kind of dairy product like cheese. These authentic Bai dishes can be found in Dali Gucheng at the Bailixiang and Jingjing Snack House. The Apricot Flower Restaurant also has Bai food and other Chinese regional food.

But what has really made Dali famous among foreign travelers is the small backpacker cafes, guesthouses and restaurants on Huguo Lu. Also known as "foreigner's street", this street boasts some great restaurants serving a full range of Western, Yunnan, Bai and Chinese dishes. Each of these restaurants have their own distinct features and menu. Some of the most frequented cafes are the Tibetan Cafe, Cafe De Jack, the Old Wooden House and the Sunshine Cafe. Yunnan Cafe, Dali Window and  Claire's Cafe are also very popular.

Food is not the only reason people come to the cafes in Dali, the cafes also offer a peaceful and relaxing atmosphere, cool music and  cold beer. Many places also have comprehensive travel information, ticket booking service and bicycle rental.