Most of Palau's visitor activity is centred on Koror, the main town, which sits on a small island connected by bridges to the larger islands of Babeldoab and Malakal.
Car rental is the best way to explore Koror and Babeldoab. Rates are reasonable by Pacific standards. You can drive on your home country licence for up to 30 days. Traffic drives on the right. The speed limit is 25 mph (40 km/h) and is enforced — this isn't just a suggestion. The road around Babeldoab was paved in the early 2000s and is now in reasonable condition.
Taxis are available in Koror and operate on fixed rates — drivers carry a rate sheet rather than running a meter. They're fine for getting around town.
Boats are how you reach the Rock Islands, dive sites, Jellyfish Lake, and the outer islands. Most visitors join organised day tours that depart from Malakal Harbor. You can also rent a boat if you know what you're doing, or charter one with a guide. Operators have good safety records but conditions can change quickly — follow your guide's lead.
Inter-island travel to Peleliu and Angaur is by small boat or occasional government ferry. The boat crossing to Peleliu takes about 90 minutes from Koror in calm weather. There are no regular flights between islands; a few charter options exist but are expensive.
Palau is small enough that you're unlikely to need any transportation beyond a rental car and boat tours. Don't try to cover everything — the Rock Islands and a few dive sites are a full itinerary for a week.