The Instituto de Artesanias Oaxaqueños, also known as "ARIPO" has a wide selection of crafts from all over the state of Oaxaca. It's housed in a colonial building on Garcia Vigil near the old aqueduct, and has this pretty central courtyard. Rooms surrounding the courtyard each display a different type of craft. You'll find textiles, wood, ceramic, metal, palm, jewelry, and more. Quality is good; the institute holds yearly contests and some of the prize-winning pieces are on sale here.
Open Monday to Friday only, from 9 am to 7 pm.