The scenery ranges from white sandy beaches with an abundance of marine life to dense jungle. Palau favours sustainable tourism, which along with foreign aid is the mainstay of its economy.
Palau became independent in 1994, after being part of a United Nations trust territory administered by the US for 47 years.
It relies on financial aid from the US, provided under a Compact of Free Association which gives the US responsibility for Palau's defence and the right to maintain military bases there. Direct aid was set to wind up in 2009, but the US agreed to an additional package of $250 million in January 2010.
Tourism is low key, although growing in economic importance. Many visitors come from Taiwan, with which Palau has diplomatic ties. Taiwanese aid boosts the economy. The government is Palau's largest employer.
Monoliths and other relics are reminders of an ancient culture that thrived on the islands, and despite Western trappings many Palauans identify strongly with their traditions and rites.
Palau's recent history has been dominated by outside influences from Spain, Britain, Germany, Japan and the US. Palau saw some of the region's fiercest fighting in World War II.
There is concern that the low-lying islands could be badly affected by rising sea levels possibly due to climate change.
Population 20,600
Area 508 sq km (196 sq miles)
Major languages Palauan, English
Major religions Christianity, Modekngei (indigenous belief)
Life expectancy 66 years (men), 72 years (women)
Currency US dollar
President: Tommy Remengesau
Tommy Remengesau was sworn in for a fourth non-consecutive term as president in January 2017, after beating his brother-in-law Surangel Whipps Jr in a closely fought election.
He described the 2016 election race as one of the toughest ever on both a political and personal level.
He has said that his vision for Palau is to achieve a sustainable future for the country by balancing growth, development and the protection of the Palau's environmental and cultural assets.
The law provides for a free press, and there are no reports of official curbs on internet access.
The senate has twice tried to ban foreign ownership of media. In 2012, a clause to this effect was included in a new telecommunications bill. It was put on hold amid international criticism.
Some key events in Palau's history:
circa 2500 BC - Palau's first inhabitants - thought to have come from present-day eastern Indonesia - settle in the islands. The early Palauans develop complex social systems, practice fishing and farming.
1783 - English captain Henry Wilson is shipwrecked on a reef and becomes the first Westerner to visit.
1885 - Spain asserts its claim to the islands.
1899 - Spain sells Palau to Germany, which begins to exploit the islands' resources using native labour. Phosphate is mined and coconut plantations are developed.
1914 - After Germany's defeat in World War I, Japan seizes Palau.
1947 - Palau becomes a United Nations Trust Territory under US administration.
1981 - Republic of Palau comes into being, following the territory's adoption of a constitution in July
1980. President Haruo Remeliik takes office.
1994 - Palau becomes independent under the Compact of Free Association with the US. Palau receives financial and other aid from Washington, and the US retains responsibility for defence and the right to operate military bases. Palau joins the UN.
More than 200 volcanic and coral islands, many of them surrounded by a single barrier reef, make up the northern Pacific nation of Palau.