Alleppey (English name for Alappuzha, with the Z pronounced as an R), is the best place for backwater action. The place is lined with canals and waterways used for commute.
The price is 15 rupees and there is even a washroom on board
From the main road in town, the government ferry service operates every two hours (first service at 7:30AM sharp!). The route takes you to Kottayam, a 2-2.5 hour journey along the backwaters.
You experience the backwater journey with local commuters, they are likely going to work. The price is 15 rupees and there is even a washroom on board, just in case (the ceiling is open to the sky).
A private charter boat can cost 400 rupees per person. A houseboat can cost 10,000 rupees per person per night.
The ferry ride was relaxing, the scenery picturesque, and our fellow commuters kept to themselves (we looked Indian after all).
From the ferry stop at Kottayam, you can take a tuk-tuk (auto-rickshaw) to town for about 150 rupees. We took a share tuk-tuk and it worked out to be cheaper that way. The tuk-tuk ride is about 20 minutes from the ferry stop to the bus stand in Kottayam.