This lovely little town on the banks of the river delta, about one hour from Carmelo, was stunning to visit and highly recommended. I hired a car through the hotel, the driver dropped me off at the old city walls at 10am, and we agreed to meet at 3pm to return to Carmelo. This was plenty of time to see the old city of Colonia, originally a Portuguese fortified settlement in the 1600s and now a UNESCO World Heritage Site. Wandering the streets was a throwback not only to the early discovery age of South America, but to 1950s USA as well--I saw cars driving around that you only see in museums these days, from some working Model A Fords to nearly mint Studebakers and old ‘50s-style Chevys.
If you don’t mind heights, go up to the lighthouse for unimpeded views across the 20-mile delta, where you can just make out the Buenos Aires skyline on a clear day. There are all kinds of shops and small museums to poke around in, and the town itself is exceedingly easy to navigate, as it is centered on the ruins of the old fort, which lies next to a tall double-towered church.
By all means, have lunch in one of the restaurants here. I had thought eating at the Four Seasons was a bargain (well, compared to its resorts in the Caribbean or the US), but lunch in Colonia was amazing—a wonderful four-course meal with a great salad, a seafood appetizer, a local beef dish, and a dessert, along with a pitcher of Sangria, was about $12.
The round-trip cost about $70 (including tip for the driver), leaving Carmelo at around 8:30am and returning at around 4:30pm.