It's situated to the south of Erhai Lake in Yunnan Province. A thirty minute bus ride will get you to the old town, which is on the western bank of the lake, at the feet of Mount Cangshan.
Xiaguan, to the east of Yunnan, is an industrial and communications hub that is unavoidable if you're heading to Dali Old Town; this contemporary sprawl has little of interest to tourists. I suggest you go to the old town as soon as you can, with its lanes, market, old houses and amazing Three Pagoda Temple.
The seat of the Bai Autonomous Prefecture, the town is home to the stunning Three Pagodas of Chongsheng Temple, a regional icon. Between its stone ramparts, paved streets, low houses and secret gardens, you'll think you're on movie set (numerous tourists aside).
You'll also find several ancient towns in the vicinity that are well worth a detour - Zhoucheng, Weishn, Xizhou and Shaxi to name a few.
Did you know? Dali and the Cangshan region are famous country-wide for the production of marble. It's not by chance that the word 'marble' in Chinese is 'dali shi' - literally meaning 'Dali stone'.