Ibiza Town

Arriving at the airport, head straight for the bus stop outside – taxis are pricey and you can queue for an hour in peak season. Bus No 10 makes the 10km route every 15 minutes in summer (ibizabus.com for winter schedules) and drops you right in the port (don't get off at the bus station, as it's quite far from the centre).

Ibiza Town offers plenty of budget accommodation, but there are a few absolute standouts. Hostal Parque (+34 971 301358, hostalparque.com, doubles from €65) occupies a prime position in a leafy square right below the Old Town walls. Rooms are modern, with air conditioning and Wi-Fi and three rooftop aticos have private decked terraces. The pavement cafe below is hugely popular with locals (it serves Ibiza's best escalope de pollo for €8).

Across the square is the quirky Casa Huéspedes Vara de Rey (+34 971 301376, hibiza.com, doubles from €53), a sprawling guesthouse with a boho vibe. Ask for a room with a view.

Start with a walk up into topsy-turvy Dalt Vila (literally "high town") – the Unesco world heritage site is a maze of cobbles and whitewashed walls. Free audio tours (in six languages) are available from the tourist office on Vara de Rey (+34 971 399232, eivissa.es). Keep an eye out for the secret escape tunnel behind the Catholic shrine on Calle de San Ciriaco.

The sensory-overload Medieval festival in May is free and one of the most dramatic ways to experience Dalt Vila, with performances, strolling musicians, singing and dancing. Likewise Easter week (Semana Santa), when torchlit processions from the stunning cathedral provide gloriously gothic eye candy for not a penny.

For more recent history, walk through mysterious Sa Penya and discover the clifftop home of the late architect Erwin Broner (free entrance, see eivissa.es for opening hours) – a modernist triumph.

For lunch, head to Mercado Viejo (the old market) and seek out Nico at the BioLunch stall for a slice of homemade organic tarta de puerros (leek quiche, €2.75). It comes on a paper plate, so you can wander through boutique-lined backstreets nibbling before picking a sidewalk cafe for a glass of vino rosado (€2, anywhere). If you're after a healthier fix, head to Es Tap Nou (Carre Madrid 18, estapnou.es, +34 971 399841) a fruit and vegetable market with a cafe-bar attached. Choose your fresh produce and they'll make it into a delicious salad with baked goat's cheese, tuna or smoked salmon for around €5.

If you're still culture-hungry, the brilliant Centro Cultura S'Alamera (Vara de Rey) offers free interactive Ibiza-centric photography/ art exhibitions. Currently showing is an exhibition of Adlib fashion of the 1960s.

The port comes to life at about 8pm – have drinks just off the waterfront to save about 50% – then grab a pavement table at the pizza mecca, El Pirata (Calle Garijo 10b, +34 971 192630, elpirata-ibiza.com) and watch the nightly show unfold – club processions, street artists and drag queens all perform here, and if you spend long enough sipping that mojito it will be worth it in entertainment value alone.

For a hearty local supper, head to nearby Comidas San Juan (Carrer Montgri 8, +34 971 311603), Bon Profit (Plaça des Parc 5, +34 971 313866) or Los Pasajeros (Calle Vicente Soler 6, +34 653 350961 – try to nab the romantic balcony table-for-two). These all offer superb home-cooked food (grilled meats, tapas, pasta) at rock-bottom prices.

Sushi is hugely popular in Ibiza, and also astronomically expensive. One exception to the rule is the brand new Sushiya Aoyama (Plaza sa Drassaneta 13, +34 627 861566), where the freshest sushi and sake in a tiny historic square will set you back €20-€25pp.

Many bars offer nightly live music, and the legendary Teatro Pereyra (Calle del Comte Rossello, +34 971 191468, teatropereyra.com) is the most famous of these. If you're after the real deal, however, you'll need to go to Pacha (Avenida 8 de Agosto, pacha.com) – the world's most famous disco. Door charges are extreme (up to €70, though you can get tickets from €39 in advance online). But here's a trick: book dinner at the Pacha restaurant (+34 971 310959, information only) and you get free access to the club (there is a minimum restaurant spend, depending on night, from €70pp). It's still an expensive night but you're getting the world-class experience and good food too.

Alternatively, head out of town to Underground (+34 971 198015, ibizaunderground.com), a low-key yet brilliant late-night club with great DJs, a local vibe, cheap drinks and a negotiable door charge.

The south

This island is famous for its beaches, and you will need to see them. Some of them can be reached by bus, but it's probably best to hire a car. Go to doyouspain.com for the absolute best deals. (Tip: beware the deals that require you to pay for a full tank of petrol in advance – their "in-house" fuel prices can be 50% more than filling station prices.)

Salinas is a great beach to start at – it's justly famous for its mile-long swathe of white sand. Take a towel – sun loungers cost €8 to hire, with a further €8 for an umbrella. The beachfront restaurants are great, but for a fraction of the cost, stop off at the roadside supermercado (on the right just before you cross the salt flats) and order a tasty ham and cheese bocadillo (baguette sandwich) to take away. Your foil-wrapped goodies plus a bottle of chilled rosado (Marqués de Cáceres is good, inexpensive and sold everywhere) will cost less than €8, and the people in the shop will uncork the wine for you and give you plastic cups.

If you plan to stay at the beach itself, Hostal Mar Y Sal (+34 971 396584, hostalmarysal.com, doubles from €60) has clean, basic rooms, a decent restaurant and a vibey late-night bar terrace just 20 steps from the sand.

Just down the road, Boutique Hostal Salinas (+34 971 308899, hostalsalinas.com, doubles from €97) offers free daily après-beach DJ sessions in a gorgeous garden, plus weekly free flamenco shows throughout summer.

Further round the coast, Cala Jondal is home to famed beachlife hotspots like the Blue Marlin. Away from the crowds, there are a couple of more chilled options – Tropicana (+34 971 802640, tropicanaibiza.com) has a laid-back Caribbean vibe and an inexpensive beach menu. There is free live music on Sunday evenings – mainly salsa and tropical. Beware the hidden lounger/umbrella/cotton bed cover charges, though. Next door's Alegria (no phone) is cheaper still, has a lovely elevated aspect and a cocktail happy hour. Even better, stop at roadside supermarket Rincon d'Es Codolar en route and stock up on divine homemade empanadas (savoury Argentinian pasties).

History buffs will love the nearby cove of Sa Caleta. It has a great fish restaurant (no phone; and don't be fooled by the shabby-chic exterior – it's expensive) but is also home to the earliest ruins in Ibiza – a Phoenician settlement dating from 654BC. It's free to look around and there is ample multi-language information provided.

If beaches aren't your bag, head inland for some exploration and adventure. For hot-air balloon views, minus the cost, head to the whitewashed village of Sant Josep de sa Talaia. Following the painted arrows just behind Bar Bernat Vinya, weave your way up out of the village and towards the top of Ibiza's highest hill, Sa Talaia. The walk is strenuous and hot – take a hat and water – but the views from the top are out of this world, and on a clear day you can see both Mallorca and the mainland. Head down the other side and walk back to the village (about three hours in total), stopping at Pizzeria Es Verge (+34 971 800041) on the way home for huge, cheap pizzas and icy draught lager. Bliss.

Another unmissable view is of the mystical rock Es Vedrà, rising from the water. Take the road from Es Cubells to Cala D'Hort and look out for the left-hand turn to Sa Pedrera. Park at the end of the lane and walk a short way to view the island from the clifftops.

Shopping in the south is all about the vast San Jordi flea market. On Saturday mornings the racetrack is filled with stalls selling clothes, furniture and bric-a-brac. There's a lot of tat but some serious treasure too. The bar inside has cheap sandwiches and shots of the local liquor, hierbas.

If you want to party, there are plenty of good options. Generally, Playa d'En Bossa has about as much finesse as a chip pan fire, but the seminal We Love… (welove-music.com) party at Space (voted world's best club several times) on Sundays is a must-do – the world's greatest DJs, a huge, festival-like atmosphere and Space's legendary terrace. It starts early, and if you get there pre-9pm it's half-price (€20).

Ibiza's other party central, Sant Antoni, has a bad reputation, but the legendary sunset strip is beloved by all. Rock up at Café Mambo (+34 971 346638, cafemamboibiza.com) any night of the week for Pacha's infamous pre-parties – see DJs such as Erick Morillo and David Guetta perform for free, and avoid the astronomical club costs. For the same sunset with none of the drama, drive out of town towards Cala Gracioneta (signposted) and find the beautiful Hostal La Torre (Urbanizacion Cap Negret 25, +34 971 342271, hostallatorre.com), a traditional cliff-top hotel, whose terrace serves inexpensive food and drinks and offers a panoramic view of the sunset over the sea – it drops in front of your eyes (book in advance for a sunset table).

If you plan to stay in the area, Casa Datscha (Apartado de Correos 24, +34 971 344075, casadatscha.net, doubles from €56) offers quirkily chic rooms in a glorious out-of-town setting (pool, art, vistas to die for). It even has an honesty bar.

The north

Ibiza's north is all about wellness and relaxation, and there's no better place to relax than luxury rural spa hotel Atzaró (+34 971 338838, atzaro.com). While the rooms are expensive (from €370 in high season), the award-winning grounds and facilities are superb (20m lap pool, hammam, sauna, Balinese beds) for €25 a day (€35 June-Sept) or €40 (€60) including lunch. The excellent Formentera Yoga (formenterayoga.com) uses Atzaró as its Ibiza base and has added a camping option, so you can enjoy the high-end experience without the high-end price tag. Prices for yoga retreats start from €1,375 a week in a luxury villa, but drop to €800 if you opt for the "glamping". It's not cheap, but it's a heck of a saving. The next two retreats run from 15-22 July and 4-11 August – see the website for more details.

You can join in completely free yoga sessions on the beach at Benirràs, where Sunday sunset drumming sessions provide soulful entertainment. A great supper option for families is the ever-chic Aura (+34 971 325356, auraibiza.com), which offers free kids' meals to families seated before 8.15pm, any night except Friday. Aura also offers some of Ibiza's best music for absolutely nada: Tuesday's Nightmares On Wax parties and Friday's DJ Antz parties offer more free fun than you can shake a stick at.

For inexpensive accommodation there are two great campsites in the area – Camping Es Cana (campingescana.com) takes two-person tents from €6.50 per night, or stay in a cute two-person cabaña from €25. Beachfront Camping La Playa Cala Martina (ibizacamping.free.fr) has a boho beach vibe plus a very cool waterside bar for similar prices.

There is another flea market at nearby Cala Llenya (Sundays, year-round) with a local bar serving very reasonable food and drinks.

Formentera

No trip to Ibiza is complete without a visit to the idyllic island of Formentera. You can take the ferry across – every hour from Ibiza Town, but it's a pricey €42 return (+34 902 314433, trasmapi.com). If you have more time, head to Figueretas, where a slower boat will take you across for €15 and drop you at the beach. Once you arrive in the harbour, La Savina, you'll need transport. Taxis aren't cheap, so hire two wheels and go it alone. A 125cc motorbike will cost €41 a day in high season, but who needs speed in paradise? Instead, opt for a 49cc scooter at €35 and enjoy the ride. Walk down ritzy Illetes beach and swim or wade to idyllic and deserted Isla S'Espalmador – the natural hot mud springs at the centre are nature's own free spa. For a luxury lunch on a budget, order a picnic from Ibiza Delivers (+34 971 100757, ibizadelivers.com) and enjoy top-quality hams and cheeses and the freshest salads with icy Can Rich rosé wine (from €25 for a delivery).

If all this is too good to leave, stay in vibey Es Pujols at the spotless Hostal Voramar (+34 971 328119, hostalvoramar.com). The inclusive buffet breakfast is a great way to stock up before the next beach day. Alternatively, if you'd prefer to stay on the sand, Las Dunas Playa (+34 971 328041, dunasplaya.com) offers beach bungalows, a pool bar and the cheapest shoreside pina colada I've found.

Maya Claughton blogs for Vogue about Ibiza at vogue.co.uk/blogs/the-ibiza-blog. Follow her on Twitter @MayaMidnightSun

• This article was amended on 26 June to correct the dates of the Formentera Yoga retreats.