Where to stay in Portugal: the best cities, coasts and islands

Lisbon tumbles down its hills to the wide River Tagus, a city of terracotta roofs, patterned pavements and viewpoints where everyone gathers at sunset. Rattling yellow trams grind up through the old Alfama quarter, the Baixa's grand squares open onto the waterfront, and the bars of the Bairro Alto keep going until the small hours.

The smartest address is the Avenida da Liberdade, a broad, tree-lined boulevard of designer shops and five-star hotels, within walking distance of the old centre. Stay here or just off it, near Restauradores, for the best balance of comfort and location. Hotels further up the hill, around Marquês de Pombal, tend to be bigger, and there are newer five-stars with views over the Tagus.

Porto is smaller, grittier and more romantic than Lisbon. The old town drops steeply to the River Douro in a jumble of washing lines, blue-tiled churches and narrow stairways, and the great iron arch of the Luís I Bridge strides across to Vila Nova de Gaia, where the port houses age their wine in long, cool cellars.

You can stay on either bank. Central Porto puts you near the Clérigos Tower and the famous Lello bookshop. Gaia, across the bridge, has the views back to the old town and a clutch of new five-star hotels, one of them built into a historic port cellar on the riverside. The business district of Boavista is calmer and a short drive from the centre. The Douro Valley vineyards make a superb day out.

The Algarve runs along the whole southern edge of Portugal, and it has been the country's holiday coast for half a century. The central stretch, around Albufeira and Vilamoura, is the busiest: sandy beaches under sculpted cliffs, a big yacht marina lined with restaurants, and golf courses in every direction. Faro airport is about half an hour away.

Vilamoura suits families and golfers, with polished resorts by the marina and the beach. Albufeira is livelier, with a strip of bars and a pretty old town above the sand. For a self-contained luxury resort with its own beach, restaurants and fairways, look at Vale do Lobo. Head west towards Lagos for coves and sea caves, or east to Tavira for quiet island beaches.

Madeira rises straight out of the Atlantic, a volcanic island so steep that the airport runway is partly built on stilts. It is green all year, thick with flowers, and laced with levadas, narrow irrigation channels whose paths make some of the best walking in Europe. Don't come for beaches; come for the scenery, the sea air and the mild climate.

Most hotels are in and around Funchal, the capital, many perched on the cliffs to the west of town with pools above the ocean and steps down to the sea. This is where you'll find the island's legendary grand hotel, which has been serving afternoon tea since the 1890s. For a newer, all-inclusive resort with a marina and easier beach access, look to the eastern tip.

West of Lisbon, the coast curves round to a string of old-money resorts. Estoril has its casino, palm gardens and sandy beach. Cascais, a former fishing village a few minutes further on, is the prettier of the two, with a cobbled centre, a marina and good seafood. A coastal railway links both with Lisbon, so you can combine a beach holiday with a city break.

Inland, the wooded hills of Sintra hide fairy-tale palaces, and a handful of hotels to match: one in an eighteenth-century palace, another on a golf estate in the forest. Stay on the oceanfront for sea views and sand, or in the hills for cooler air and extraordinary surroundings.

The Alentejo covers almost a third of Portugal and holds very few of its people. Inland it is a rolling plain of cork oaks, olive groves and vineyards, dotted with whitewashed hill towns such as Évora. Life is unhurried; lunch is long; the wine is excellent and underpriced.

The coast is the surprise. Comporta, an hour or so south of Lisbon, is a low-key hideaway of rice fields, pine woods and endless white sand, with some of the most stylish retreats in the country. The Troia peninsula next door is reached by ferry and has beaches five minutes' walk from the hotels. Further south, the wild south-west coast is all cliffs, river mouths and walking trails.

North of Lisbon the Atlantic coast turns breezy and big-waved, and the crowds fall away. The star of the region is Óbidos, a tiny whitewashed town still completely enclosed by its medieval walls, which you can walk around in half an hour and remember for years. Nearby is a large lagoon with white-sand shores, and beyond it surf beaches run for miles.

The hotels to know about are the golf and beach resorts around Óbidos: low-slung, modern and set among dunes and pines, with fairways above the ocean. They are about an hour from Lisbon airport and make a peaceful alternative to the Algarve, especially in the heat of summer, when the sea breeze is a blessing.

The Azores sit far out in the Atlantic, about a third of the way to America, and feel like nowhere else in Europe. São Miguel, the main island, is a patchwork of emerald pasture, blue hydrangeas and volcanic craters filled with lakes. At Furnas the ground steams, and you can soak in warm, iron-rich thermal pools under the trees.

Most visitors base themselves in Ponta Delgada, the island's small capital, where the best hotels face the marina. A spa hotel in Furnas lets you sleep among the hot springs, and there are newer resorts on the south coast with ocean views. On Terceira, the UNESCO-listed town of Angra do Heroísmo has a five-star a few minutes' walk from the beach.