There are several good places to stay in the downtown area. I recommend:
Wickwood Inn: This is a charming bed & breakfast just north of downtown Saugatuck. It has lovely common areas and rooms. They provide wines and hors d’ouevres in the afternoon and a lovely breakfast in the morning. 510 Butler St.
Hotel Saugatuck: Renovated and reopened in 2016, this is a lovely 18 room, luxury bed & breakfast. It has rooms in the main building as well as in several cottages on the property. There is no dining room, but breakfasts are delivered to your room at the time you want.
The building was originally built in 1865 and then for many years from 1922 was the former Twin Gables Inn. Some of Al Capone’s gang used to stay there during Prohibition in the 1920s.
Recommended by locals as well as the Wall Street Journal, I made a point to stop in for a visit and was very impressed. I will definitely stay there on my next trip to the area. It is a short walk to downtown at 900 Lake St.
I also just read about the Lake Shore Resort, south of downtown Saugatuck on Lake Michigan near Douglas and Fennville. It is a mid-century motor inn that has been totally refurbished. It has sleek rooms and includes a complimentary breakfast and use of all amenities including their bikes and kayaks. 2885 Lake Shore Dr. I would love to stay there on my next trip over from Chicago! It is a great location from which to explore all that Saugatuck, Douglas and Fennville has to offer. A friend who has owned homes in the area, confirms that is a lovely spot on the water in a very quiet residential area.