The economy of Kodaikanal is predominantly run by tourism. The town's infrastructure changes every year in preparation for the peak tourist season. Major roads are converted into one-way lanes to regulate the constant inflow of traffic and special police are brought in for the safety of the tourists and protection of local businesses. Hotels are often fully booked during the high season, and remain virtually empty during the off-season. Due to the rapid development of nearby cities such as Madurai and Coimbatore, the town is starting to enjoy year-round tourism.

There are at least 50 hotels catering to all categories of tourists and over 30 south & north Indian, continental, western and Chinese restaurants, and many more small eateries and tea stalls.
There are at least seven retail bank branches and five automated teller machines (ATM) in Kodaikanal. The Bank of India has a branch and ATM at S.G.J Thangadurai Building, Anna Salai. The Canara Bank has a branch and ATM at CLS book shop complex, Anna Salai. The Central Bank of India branch is at M M Street, Law's Ghat Road, Perumalmalai. The Indian Bank has a branch and ATM at Anna Salai. The State Bank of India has a branch at Anna Salai and also has an ATM on Lake Road, outside Kodaikanal International School. The Union Bank of India has a branch at Naidupuram and also has an ATM on the 1st Floor of Municipal Shopping Complex opposite the Old Bus Stand, Anna Salai.. ICICI Bank also has an ATM in Kodaikanal.

The Kodaikanal Co-operative Land Development Bank, The Kodaikanal Co-operative Urban Bank at Anna Salai and the Madurai District Central Co-operative Bank at Post Office Road offer only local Commercial banking services. There is an excellent bazaar where residents, local villagers and tourists come buy woollen clothing, flowers, fresh grocery, meat, handicrafts, hot snacks, cheap toys, medicinal herbs and oils, hardware, dry goods and cooking fuels. The cosmopolitan nature of Kodai is evident on Anna Salai, the main business street, where it is common to see local villagers, European and American students and backpackers, foreign retirees and families from other parts of India, all mixed together in their common activity of shopping.

Plums, pears, chile peppers, carrots, cauliflower, cabbage, garlic and onions are cultivated by terrace farmers in surrounding villages. Most are trucked to other parts of India and some are sold in the local market. Popular tourist souvenirs include handcrafts, home-made chocolates, postcards and Eucalyptus oil.

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