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Tourism is one of the important elements in the economy. In the fiscal year 2000–2001, some 50,000 business and tourists arrived there. Tourist activity focuses on scuba diving and snorkeling. There are many amazing diving sites such as The Blue Corner, German Channel, Ulong Channel, and Blue Holes. Palau Jellyfish Lake is an attraction. Here jellyfish have evolved away from their stingers in the absence of predators. The lake is good for scuba diving.

Nearly all visitors can receive a free 30-day tourism visa on arrival. Citizens of Bangladesh and Myanmar need to obtain a visa in advance for entry.

Taiwan and Palau launched Asia's first Covid-19 travel bubble on 1 April 2021. On that day the first batch of around 100 Taiwanese tourists arrived at Taoyuan international airport near Taipei.