From page 51 of Oaxaca Tips
Sitting at a café in the zócalo, the city's main square watching the world go by is a must for every visitor to Oaxaca. There are places here to relax with just drinks or coffee, or have a snack, or eat a meal. The Marqués del Valle Hotel on the north side used to be THE place to see and be seen. But ever since it built a railing along the veranda and glassed itself in, it has felt isolated from the square. If you like exclusivity, this is for you. But if you want the real feel of the zócalo, choose one of the more people-friendly cafés along the east and west sides. Some offer mainly antojitos; others feature full menus. Just remember one goes to the zócalo for its ambience, not for gourmet food.

Our longtime favorite for drinks, light meals, and people-watching is the unassuming Café Bar del Jardín at the southwest corner of the square. A marimba band plays here nightly from 9 - 10:30PM.

But check out all the options; there's a café here to suit every taste and every budget.

Bar el Jardin on the sw corner of the Zócalo
Restaurant El Asador Vasco is upstairs
Cafés on the east side of the Zócalo