Hi Jennifer, there are so many things to do in and around Otavalo. Saturday is the big market day, and you can spend all day just wandering through the animal market, produce market and artisan market. (You can do all these minus the animal market any day…)
You should also take the bus (25 cents) to Cotacachi and roam around our little town a bit. (You’ll find plenty of gringos in Cotacachi — just stop in Serendipity or Solid Rock restaurants or the Monkey Bar) From there you might take an excursion to Lake Cuicocha… beautiful. If you like hiking, this is the place to do it.
You might also want to do a tour of the local indigenous villages. This tour can be a little touristy, but it’s fun, and an easy way to see the artisan communities. This tour usually also stops at the Peguche waterfall. You can ask your tour guide to take you to see a shaman in Illuman… a once-in-a-lifetime experience. Your hotel should be able to help you with all this…