Restaurants & Tavernas
Panormos has a good selection of tavernas cooking up some excellent Greek and Cretan food. All in all the food was superb and very reasonable. Depending on how piggy we were feeling, prices ranged from €15 to the most expensive meal we had of €32. This would usually include two courses and vino or beer and a side dish or two.
I'm not going to recommend any one place in particular as all were good and I haven't got the foggiest what they were called anyway.
Just wander around and take your pick!
Most seem to be either on the street leading down to the left jetty of the harbor area or back a bit near the bakery and coffee place. Here is a most sophistacated map:

You can see the three tavernas down by the harbour (left) just past the larger of the mini markets in Panormos. We ate at A and B which both have quality sea food. (view is from the bar directly above the beach)

The Squid at B was so good I had to take a picture of it! It simply melted in the mouth - lovely. Other notable dishes were the seafood kebabs and the roast lamb in white wine.
We never went to C which seemed to be more popular lunchtimes and i've never been a fan of eating midday as it makes me sleepy.
Right by B are a couple of bars too. See the drinking page for further details.
One place you really must try is located right in front of the main bakery. It has no menu and you pick from what is available in the kitchen so you know your food is freshly cooked. Large pork and chicken kebabs with beers came to €15 which was a bargain if you ask me. One thing to note is that it is very popular so it seemed that getting there early was the best bet.
Another notible place was located above the jetty on the right hand side of the horbour. The stifado (beef stew) was great and huge portions.
This would be sooo much easier if I'd noted the names of the places we ate!