Hotel Chapelco (General Cruz 401, tel. 045/749393, www.hotelchapelco.cl [1], US$27/30 s/d with IVA discounted) is a respectable option, with private bath and breakfast, near the train tracks at the east end of downtown.
In residential west Temuco [2], Posada Selva Negra (Tirzano 110, tel. 045/236913, www.hospedajeselvanegra.cl [3], US$27/42 s/d) is a German-run B&B that’s well worth consideration.
Nearby
Hostal Austria (Hochstetter 599, tel./fax 045/247169, www.hostalaustria.cl [4], US$30/50 s/d) offers quiet, comfortable, spotless, and tobacco-free accommodations with private bath, cable TV, and genuine Gemütlichkeit (warmth and personal attention, not to mention a well-above-average breakfast).
Near the Mercado Municipal, Hotel Nicolás (General Mackenna 420, tel. 045/210020, www.hotelnicolas.cl [5], US$34/45 s/d with private bath and TV) is undistinguished but more central.
Recently rescued from the wrecking ball, the timeless Hotel Continental (Varas 708, tel. 045/238973, www.turismochile.cl/continental [6], US$16/28–37/46 s/d) is a living monument with a spectacularly anachronistic dining room and an equally classic wooden bar; plaques identify rooms where illustrious guests such as Presidents Pedro Aguirre Cerda and Salvador Allende, and Nobel Prize poets Gabriela Mistral and Pablo Neruda, have spent the night. Long-overdue improvements are likely in store and it may even close for rehab, but at present rates vary according to whether the room has just a washbasin (with shared exterior toilet and shower), shares the bath with an adjacent room, or has its own private bath.
Links:
[1] http://www.hotelchapelco.cl
[2] http://www.moon.com/destinations/chile/sur-chico/temuco
[3] http://www.hospedajeselvanegra.cl
[4] http://www.hostalaustria.cl
[5] http://www.hotelnicolas.cl
[6] http://www.turismochile.cl/continental