This commendably friendly 28-bed hostel sets the standard, with bright, clean Japanese-style rooms with Western-style bedding and bathrooms, uber-helpful staff, an open kitchen and a dedicated crew of local volunteers who lead free walking tours around the city. It's located by the lovely Nakashima-gawa. Towel rental is ¥100. Check-in can be tough between 1pm and 3pm.
Hostel Akari
Top choice in Nagasaki