City Hotel Andoh
Most of the rooms in this business hotel are Western-style, but a few rather nice Japanese-style rooms are available for slightly more. Rooms have Internet access, and there are PCs in the lobby.
Iwakuni Youth Hostel
Offers an "Iwakuni Sushi Experience Classroom", although only by reservation.
Iwakuni Business Hotel & Spa
Another business hotel with a mix of Japanese and Western-style rooms, a nice public bath, and an open-air beer garden on the roof as weather permits. Take note: the spa is open to non-guests 10AM-8PM — ¥550 adults, ¥350 children.
Iwakuni can be easily visited as a day-trip from Hiroshima, where there are more plentiful accommodations. However, there are a few options in town.
Shiratame Ryokan
Traditional Japanese rooms with a great view of the bridge. The seasonal seafood meals are excellent — they can even swipe a page from the Shimonoseki chapter and serve fugu with advance notice.