Shop around for airfare. Getting to Oaxaca can be the most expensive part of your trip. The only direct flight out of the United States is via Continental, out of Houston. However, you can get to Mexico City airport from most cities, and there are deals to be had if you check the major search engines as well as the airline websites. Mexicana usually has sales on Tuesdays, through its Click! insignia. Mobissimo posts some dirt-cheap deals for getting across the border, but you'll have to be flexible with dates. From Mexico City, you can grab a plush first-class bus and be in Oaxaca in six hours--barring traffic jams.
Wait to book your room, unless its Holy Week (spring), Guelaguetza (July), Day of the Dead (late October to early November) or Christmas. You can typically score a better price working directly with the hotel or hostel than if you try to book ahead, because the agent gets a commission. In Oaxaca, there are multitudes of budget options, but the very cheapest are in the noisiest part of town, near the second class bus station and the Abastos market. Try staying on the fringe of Oaxaca's city center, and you'll find cheaper prices. If you're nervous about waiting to book or if you're arriving late in the day, reserve a couple nights in advance and then book the rest of your stay once you arrive.
Eat and drink like Mexicans do. Rather than sit down to three big restaurant meals per day, have a Mexican breakfast, such as chilaquiles or huevos mexicanos. Grab a little fruit from a cart at midday and wait to have your big meal until after one in the afternoon. This time of day is when restaurants place placards or signs in front advertising "comida corrida" or meals on the run. What it really means is that you are getting a hot and fresh special of the day along with fruit juice ("agua fresca"), soup, perhaps a salad, and some bread or tortillas on the side. The whole tab will run you under $5 at a budget place, and closer to $9 at a gourmet place. At night, stop at a clean street cart (follow the crowds) and order a Oaxacan snack, such as a memelita, empanada or tlayuda.
Shop at the markets. Oaxaca is made for shoppers, but the central boutiques and the big plazas can be expensive. Check out the Benito Juarez market, at the corner of the zocalo, for handicrafts and food items. The Artisans' Market, near the chocolate factories of Mina Street, has better deals than most shops on hammered tin, woodcarvings, weavings, rugs, blouses and wooden toys. The Abastos Market is the main city market, located on the edge of town. Gird yourself for navigating a splendid labyrinth of Oaxacan cheese, clothing, housewares, sugar skulls, homeopathic medicine counters, sweet breads, wooden furniture, baskets, masks and other treasures. Remember to bargain, but bargain gently.
Use public transportation. A bus in Oaxaca will get you anywhere you need to go in town, and many places you need to go outside of town. Adult fare is under 50 cents per person. A taxi ride between points in the center of town is typically under $4. Oaxaca also has a comprehensive first and second class bus system, accessing points throughout the state and country. There are no longer any operating trains in Oaxaca.
Celebrate in the streets. Oaxacans know how to put on a street party, and the entertainment is free. The main streets radiating from the zocalo are often the scene of calendas, or street processionals. Giant puppets, firecrackers, live music and cellophane-covered torches create a beautiful scene of street theater. Sometimes a person dressed as a bull is teased by marching matadors, while free shots of mezcal are passed around.
