It’s central and it’s cheap so it’s worth a look. The museum is housed in the reconstructed former home of Du Wenxiu, a Hui minority Chinese who led a Muslim revolt against the Qing Dynasty in the late 19th Century. The museum houses the usual things you see in Chinese museums: old artifacts of jade, bronze, porcelain, etc, which were unearthed in the Dali area, as well as scrolls and stone tablets. The museum has adequate English explanations.
Admission: ¥10. Open: 9am-5:30pm.
Directions: The Dali Museum is on the main north-south drag, Fuxing Lu, about 70m directly north of the South Gate.