To mark Krakow's appointment as Unesco City of Literature, a set of super-sized, multi-coloured letters were placed in the iconic medieval Marketlplace ("Rynek"), spelling out "Krakow, City of Literature" in Polish ("Miasto literatury"). Overnight, the citizens demonstrated their creative spirit by rearranging the letters to form messages of their own (some not fit to be printed).

Krakow lives and breathes literature. No city could be more eminently qualified for the Unesco title, which is now in its seventh year, with Edinburgh and Norwich among previous recipients. It's hard to imagine how it can add to its existing plethora of literary events: it hosts two annual international literary festivals, a book fair, and any number of poetry readings; it is home to the Polish Book Institute – a superb public organisation which exists to promote Polish literature at home and abroad. It's also home to several publishing houses, from old and traditional to young and ground-breaking.

Krakow's literary residents have included the Nobel prize-winning poets Czesław Miłosz and Wisława Szymborska, science fiction writer Stanisław Lem and satirical playwright Sławomir Mrożek. Its living, internationally acclaimed poets include Adam Zagajewski and Ewa Lipska.

Literary Krakow has much to offer foreign visitors as well as Poles. The Conrad festival, and the Miłosz festival, held in October and May respectively, regularly present authors from all over the world, with past heavyweights including Seamus Heaney (who had many close friends here), Orhan Pamuk, Zadie Smith, Robert Hass and Adonis. The city has many ideal venues for cultural events – theatres, museums, medieval churches, restored synagogues, and atmospheric cafes, all within walking distance of the Rynek. Whenever a festival is in full swing, the whole city reverberates with poetry and music – they even project poems onto the 700-year-old town hall tower.

There are plenty of less official ways to enjoy literature in Krakow all year round, whether you know Polish or not. It is the best place to indulge in a bookshop crawl – even the passageway under the station platforms is lined with secondhand book stalls – and the English-language Massolit bookshop, café and venue is a book-lover's dream. Enter one of the cafes in the little streets off the Rynek or a bar in the old Jewish district of Kazimierz, and you're likely to see somebody sitting over a laptop writing a poem or a novel. Stay until evening and you might hear them reading it out – not least at the monthly "Talking Dog", where writers and performers are invited to talk about anything they like for a maximum of five minutes, as five red light bulbs go off in turn to mark the end of each minute. An English-language edition is being launched on 21 November at the Piękny Pies – "Beautiful Dog" – night club.

This event comes out of a Krakow tradition of combining literature and performance, which has always been encouraged by the many writers who have lived there. Nobel laureate Wisława Szymborska – who referred to her award as "the Stockholm Tragedy" and retained the irreverent spirit of a schoolgirl until her death at 88 – was a regular instigator of unusual creative activities such as rude limerick competitions and lotteries offering bizarre jumble-sale prizes. In her youth she lived in the Writers' House on Krupnicza Street, set up after the war as a refuge for authors displaced from ruined Warsaw and elsewhere; just about every successful Polish writer stayed there at some time.

One important fixture was the Piwnica Pod Baranami cabaret, where scientists mixed with artists. In its heyday, the eminent physician and essayist Andrzej Szczeklik regularly played the piano there, while historian Norman Davies (a part-time resident of Krakow) played his accordion, and the great philosopher Leszek Kołakowski sang arias from famous operas. Rather than dampen Krakow's performing spirit, the constraints of communism fanned its flames; in the days of censorship, a banned literary journal was defiantly read aloud in a church each month. The genius behind it was the poet Bronisław Maj, whose post-communist contributions to Krakow literary life include dressing in a headscarf and pinny to deliver the inimitable monologues of Pani Lola, the cloakroom attendant at the Writers' Union, who revealed all the great writers' most intimate secrets, and her own crucial, Muse-like role in their literary success.

Oddly, as Adam Zagajewski points out in a short film made to coincide with Krakow's new role, there is no great novel about Krakow (yet), though it has inspired numerous short stories and poems by Poles and others. More than anything, it's a city that prompts unforgettable shared moments. When, after many years in exile, Czesław Miłosz came to live in Krakow in the 1990s, his presence prompted a unique gathering of 18 poets from east and west, including Paul Muldoon, Tomas Transtromer, Tomas Venclova, K Williams and Natalia Gorbanevskaya. After several well received readings, the poets went to a café in the marketplace, where each occupied a separate table to sign books and chat to their readers. To the organisers' amazement, a huge queue formed. "What are you queuing for?" asked curious passers-by. "For the poets," they heard, and joined the queue.