Just got back from traveling to San Jose and Cahuita on the Carribean coast for a few days and wanted to share our experiences with money while traveling.
Everywhere we went in Costa Rica accepted either US dollars or Costa Rican colones (even on the Carribean cost dollars were accepted).
We brought US dollars and planned on getting local currency (Colones) from an ATM. Cahuita has just one ATM and it was broken on a Friday. I thought we'd need to go to Puerto Viejo for the ATM, but the next day the ATM in Cahuita was magically fixed.
There is also an ATM in San Jose airport by baggage claim-- plan ahead how many colone you want to withdraw (i.e. figure out how many dollars to colone-- otherwise it is pretty scary saying you want to get 60,000 colone from an ATM and worrying that you'll overdraw your account!). There is a button to switch the language on the ATM to English.
In some situations it will be easier for you the traveler in many situations to pay in colones (farmer's market, grocery store, restaurant etc.). When you pay in dollars, your change is given in colones (only exception was at our hotel in San Jose). So you should practice translating colones to dollars and back so you can give the right size dollar bill and expect the correct amount of colones in return. That being said, we were not taken advantage of as you'd expect- people were very honest about currency exchange (except for one taxi driver who took an extra 100 colone-- 20 cents-- for his trouble to get our change from the hotel-- and even that seemed reasonable).
And this is easier if you have a lot of $1, $5, $10 and $20 bills. I brought $50 and $100 bills but those are only good for hotel or if you have a very big expense (like private shuttle service, or canopy tour for example). It was much easier to use the smaller bills (and then you don't get so much change back in colones).
How to quickly convert to dollars in your head: how many "mil" (thousand) colone is the price? The paper bills are all in mil (i.e. 1,000 colone = 1 mil colone; 5,000 colone = 5 mil colone etc.). Take that number of mil and multiply by 2 to get the approximate amount in US dollars (i.e. remove three decimal places then multiply by 2).
I wish I had practiced saying and listening to numbers above 20 pronounced in Spanish-- knowing how to say 1500; 5250, 10,000; etc would have been nice. Use a guide book, or google translate (type in "one thousand five hundred" for example and translate to Spanish) and make your own colone number flashcards to practice before your trip.
Most hotels seem to have safes in them, so plan on keeping your extra cash in the safe and only carry what you'll need for the day plus a little extra just in case you want that souvenir or need another meal. I felt too hot to keep a money belt on me-- money belt is just another layer of clothing to get sweaty!
About using up your colone at the end of your trip: Don't forget the $29 departure tax you will pay when leaving San Jose airport. There are also plenty of stores in the airport where you can buy extra coffee, t- shirts etc. and they will let you pay in colone and dollars (i.e. use up the last 4,860 colone and pay the rest in US dollars). However the airport store prices are much higher (i.e. on par with US prices in gift shops) so buy your coffee at the supermarket or a store in town instead.