Panarea Island is the smallest inhabited island of the Lipari archipelago. It is considered one of the most picturesque islands of the Lipari Islands. Panarea is located between the islands of Lipari and Stromboli. Lipari is 7.5 miles to the south-west and Stromboli is 10 miles to the north-east.
The ferry port of Panarea Island is on the east coast of the island. Just north of the port is a large field of mooring buoys for yachts. Most of the yacht anchorages are also on the east coast of the island.
A mile east of the ferry port lies a picturesque group of cliffs (Panarelli, Dattlio, Lisca Nera, Bottaro and Lisca Bianca) very popular with yachtsmen. To the south of Lisca Bianca there is an anchorage for yachts.
Most of the west coast of the island and the surrounding cliffs are part of the Panarea Nature Reserve. At Punta Milazzese on the southern tip of the island are the remains of a Bronze Age settlement discovered in 1948.