It's the ultimate room with a view

From the terrace of the Bauer Hotel you can take in the very best of Venice - and the food's not bad, either.

For a hotel to boast about being on a city's main street, particularly when the property is at the junction with another busy highway, is uncommon. But this is the location of the Bauer Hotel in Venice, and one of its greatest assets: a site on the Grand Canal, at the point where it begins to open out into the lagoon. From the restaurant, the terrace and many of the rooms, the view to the right is of the buildings lining the canal; the islands of Giudecca and San Giorgio are in front; farther away to the east is the ancient Arsenale.

For my money (and that'll be around a million lire per night), this position makes the Bauer a more attractive Venetian venue than any other hotel, even the better known Daniele and Cipriani - neither of which is able to combine a panoramic view of the city with a close-up of everyday life.

Yet from its street entrance, in the Campo San Moise, the hotel is one of the ugliest buildings in Venice, although this has never deterred the long list of royals, politicians and stars of stage and screen who have stayed here. But in Venice the point of access from the street, even into the reception of a luxury hotel, is really only the back door: the main entrance, the public facade, is always the one seen from the waterfront.

The whole of Venice was, of course, built to be approached from the city's network of canals, so only by water can the buildings properly show off.

The hotel was opened after a young Austrian businessman, Julius Grunwald, married a Miss Bauer, daughter of a prominent Venetian who lived in a 17th-century palazzo on the Grand Canal. Grunwald bought several nearby buildings, pulled them down, and built a hotel into which he incorporated his wife's family home, designing the new rooms to retain the feel of the original palazzo. The Grunwalds sold the hotel in the Forties to an Italian shipbuilder, whose family still runs it.

After the Second World War the Bauer was remodelled, and a half-century later it is reaching the end of another extensive renovation which will enhance the terrace and restaurant areas - doing justice to the kitchen's sumptuous spreads of northern-Italian cuisine - and add an extra two floors to the original hotel.

The finest rooms will still be on the second floor, where by Venetian tradition opulent family quarters are located - the elegance defined by high ceilings and lashings of Carrara marble and Murano glass. In any Venetian home the second storey is the most important floor of the house, and a glimpse through the upper windows of any of the buildings along the Grand Canal reveals ornate ceilings and magnificent glass chandeliers. The servants lived on the first floor, just above the boathouse, which was an integral part of the building.

The Royal Suite in the Bauer is naturally on the second storey. The marble floor has been preserved in the renovation, along with some of the 17th- century furniture.

The location is ideal, not just for the views from the hotel. Several famous landmarks are on what passes for the doorstep. Immediately across the water, in the area known as the Dorsoduro, is the Dogana, or old customs house. In the 17th century, this was an early Venetian prototype for New York's Ellis Island of Venice - the place where anyone arriving from outside first landed and had to prove who they were before being allowed up the canal.

There used to be a vast iron chain which acted as a barrier when the city was under threat of invasion. It could stretch from the customs house across the mouth of the canal, blocking the way into Venice.

Just west of the Dogana is the church of Santa Maria della Salute, built in gratitude to the Virgin Mary for restoring the population to health after a bout of plague in which more than 45,000 people died. (During the 16th and 17th centuries nearly a third of the city's population was killed by diseases.) The architect of the church was Baldassare Longhena, who was responsible for several buildings in the city, though he died before this masterpiece was completed. The interior is octagonal and, like so many Venetian churches, casually stuffed with priceless works of art; in this case, a ceiling by Titian, and Tintoretto's painting of the marriage at Cana.

At night, the most striking landmark in the lagoon is the basilica of San Giorgio Maggiore, one of three Venetian churches built by Palladio. The island of San Giorgio, on which it is built, was once the site of a Benedictine monastery, and many of the old monastic buildings are still there - although now they have a more secular function. Palladio's harmonious style left nothing to chance. The proportions of all his buildings are carefully calculated.

The best place from which to see this (particularly at night when San Giorgio is gloriously lit) is from the terrace of the Bauer, with the house cocktail in your hand. Venice's most famous drink may be the Bellini at Harry's Bar, a block away in Calle Vallaresso; but at the Bauer they serve something more potent. The Grunwald, a mixture of kiwi syrup and cointreau, topped up with sparkling wine, is an ideal accompaniment as you watch the sun set over the hotel that has long been described as the most beautiful location in Venice.

The Bauer Hotel (00 39 041 5207022) is in the Campo San Moise, in the San Marco district. Prices start at L790,000 (around pounds 300), but a view over the Grand Canal will set you back at least L1,100,000. There is 10 per cent tax on top of all room rates. Prices are highest from April to June.

Getting there: The low-cost gateway to Venice is Stansted in Essex. Go (0845 60 54321) flies to Marco Polo airport, for pounds 80 or more. Ryanair (0541 569 569) flies to Treviso, about 20 miles north of Venice, for pounds 60 or more. British Airways (0345 222 111) also flies from Heathrow, and Alitalia (0171-602 7111) from Gatwick. There are good deals from regional airports on Sabena via Brussels and KLM via Amsterdam. More information: Italian State Tourist Office, 1 Princes Street, London W1R 8AY (0171-408 1254)