Washington, DC, holds a huge party every year on Independance Day right on the National Mall. Since it happens concurrently with the Smithsonian Folklife Festival (separate entry on that) it is a very busy, crowded day, but can be a great deal of fun.
Typically there are a variety of concerts happening, usually a pop concert on the Washington Monument Grounds, a country concert near the Air and Space Museum (these may vary; check a day or two ahead with the National Park Service, they will know what is going on) and always the National Symphony on the Capitol Grounds.
Of course there are fireworks, one of the finest displays in the country. The best seats are on the Washington Monument Grounds, but you will need to arrive fairly early, get a seat, drop a blanket, and leave someone to guard it in order to snag one of those seats. Not to worry, though, the show is perfectly visible all the way down the mall (make sure you are not blocked by one of the Folklife Festival Structures) and even across the river in Virginia.
- Be prepared for big crowds.
- Don't even think about driving. Your best bet is to have a downtown hotel room, but barring that, take Metro. It will be like Sardines returning in the evening (although better if you backtrack to L'Enfant Plaza or even Capitol South Stations on the Orange and Blue Lines). Remember the government will disallow parking on the main streets downtown, and even close some. DC driving is never pretty; on a day like this it becomes a nightmare.
- Bring sunscreen, a hat, and water. You will be out in the scorching sun all day. Prepare for it.
- Expect to spend money. Between the very fine gifts available at the folklife festival, the wonderful international food available on the mall, and the soda and ice cream vendors, you're gonna want something. The police may limit what you can bring into the area, although my daughter took water bottles with no problem last year.
- Expect high security. It's a post 9/11 world, folks. I don't know what they will do this year, but last year the whole mall was blocked off, and you were inspected (and any bags you had inspected upon entry). No alcohol was allowed, no cars near the mall. Once inside, my daughter tells me, they were free to do as they pleased, but the government does not want a terrorist incident in DC on July 4th, so they are very careful.
Best metro stops for this range from Metro Center to Capitol South on the Blue and Orange Line, Gallery Place through Union Station on the Red Line, and Gallery Place to L'Enfant Plaza on Yellow and Green. Note that last year Smithsonian Station was closed.