The bustling, historical town of DALCAHUE lies 20km northeast of Castro via the turn-off at Llau-Llao. It is famous for its thriving traditional boat-building industry and the Sunday Feria Artesanal, when artisans come from nearby islands to sell woollen crafts, wood carvings and hand-woven baskets. Dalcahue also provides the only link with nearby Isla Quinchao, the second largest in the Chiloé archipelago.
Most of the action is centred around the attractive Plaza de Armas and the open-sided market building on the waterfront. On the plaza rises the imposing, UNESCO-listed Iglesia de Nuestra Señora De Los Dolores, which dates to 1893 and boasts a unique nine-arched portico.