You've got to really pay attention, ask around and seek out the best places. Fancy environment doesn't necessarily mean great food. More like overpriced and mediocre menu, unfortunately. Traditional fare is chicken, black beans, rice, tortillas and a little vegetable. I posted about that earlier under C for Chicken, and I can't resist posting another delicious plate from The Last Resort, our personal favorite.
What's so charming about this family-owned restaurant, is despite having amazing food at exceptionally reasonable prices, and a clean tidy environment, it's all prepared fresh. You'll see one of the little boys, a son of the chef and proprietor, run out to the corner tienda to get something specifically for the dish you've just ordered.
There is other traditional fare like pupusas, gringas, tostadas, tamales, empanadas, arroz con leche. The street vendors often have the best items, like the ladies grilling corn on the cob over hot coals, then serving it rubbed with lime and salt.
And for a snack, you won't want to miss frequent stops at the fruit carts for fresh papaya, pineapple, mango, watermelon or whatever is in season.
The larger restaurants will serve fish and shrimp and fancy drinks. Be sure to specify if you want your fish with head on or off.
When you visit Panajachel, ask at your hotel for restaurant recommendations. Or you can pop into Hotel Casa Colonial and talk to Bruce Gowen, who will be happy to tell you where to find the best food in town.
Besides traditional Guatemalan restaurants, he can direct you to a wonderful cafe that serves authentic Spanish seafood paella, a huge bowl for the table accompanied with fresh rolls and herb butter. One of my favorite places right near the hotel is the Tuscany, with bruschetta as good as any in Italy (according to my well-traveled sister who's been to Italy many times). Or if you just like basic American food, there's the best hot dogs ever at a stand that sets up on Santander after 8 p.m.
Bruce and I have been exploring and experimenting with the restaurants and street vendors for over a year now, and we have our own code for the ones we like:
Chicken Soup at the Mercado
Pana Rock Nachos
2 for 1 Pizza at Pollo Campero
Fried Chicken at That Place We Like
Hot Dogs on Santander
Grilled Chicken Guy