The Cusco area has some extremely good international food with tasty options for all budgets. Best pizza ever at the end of the Av. La Cultura. Be sure to try an alpaca steak (don't forget a llama/alpaca is normally kept and used for its wool - so only old animals will be slaughtered).
The soups are amazing. Try sopa de zapallo, a type of pumpkin soup.
If you are looking for traditional Peruvian food try lomo saltado (beef tips stir-fried with tomatoes, onions, and spices, over a bed of french fries and rice), aji de gallina(chicken in a very good yellow pepper sauce with olives and hard-boiled eggs), or papa rellena (stuffed potato with beef, olives, hard-boiled egg, vegetables, and spices)
When leaving Cusco, there is a place called Boing Appetit (in front of the Airport, just if you want to have breakfast or a sandiwich before take the plane to Lima) its the only place that counts with free internet conection in front of the airport.
Cuy, (guinea pig), The absolute traditional holiday food of the region. You can buy a whole cooked cuy in many of the restaurants around Plaza de Armas. In 2012 cuy cost 60S at all these places. There are also dedicated 'cuyerias' that serve much cheaper cuy.
Alpaca, Grilled, tastes like a more tender steak. You must try it. You can get alpaca pizza as well.
Cooked potatoes, Cooked and served hot in the cold season.
Chifa. This is the Peruvian version of Chinese food. The neighborhood of Wanchaq has many Chifa restaurants.
Inca Kola, a bubble gum/tutti-frutti-flavored golden-yellow soda. This drink outsells Coca-Cola in Peru, although its maker has been a subsidiary of the Coca-Cola company since 1999. Also, chicha morada is a Peruvian specialty. It's a spiced non-alcoholic drink made out of purple corn.
San Pedro, (1 block west of Plaza San Francisco. It's on the block bounded between Calle Hospital & Calle Nueva and Tupac Amaru and Cascaparo - just east of the train station for Machu Picchu). Definitely the cheapest place to eat ! You can have a complete menu (Sopa + segundo) for 4 soles. The market has several food parts : fruit juices, Caldo de gallina (soup with chicken), Desayuno (breakfast) and traditional food.
El Encuentro, vegetarian restaurants - very reasonably priced with huge portions. The 5 soles dinner is very popular and includes soup, main course & mate. Free salads with lunch. They also do soy meat very well. There are two of these restaurants but the one in Calle Leon near Plaza de Armas is at least 1 sol cheaper for the exact same menu.
El Balcon, Soup, main course, and desert (no drink) for 10 soles, about US$3.70. If you're looking for good quality food for not a lot of money, this is the place to go.
Al Gustitos de Loli, caller recoleta. Owned by a very friendly peruvian woman and his brother. It's a small "gourmet" restaurant, a bit more expensive then basic restaurants (20-30 soles), but cheap for that quality. The food is really good, especially the homemade pastas. Very good option for a romantic dinner.
Inka Grill, on the Plaza de Armas, Well-known and frequented by tourists but not a trap. Excellent food. Good place to try Cuy (guinea pig); some people have reported mud butt after eating it, it is tastily done and served without the head so eating doesn't remind you of your pet hamster. Try the appetizer tiradito de trucha. Alpaca also on the menu.
Ajjla Wasi (now rebranded to Peruana), calle Arequipa, (just off the Plaza de Armas, after Santa Catalina Monastery). Traditional 3 course meals with a glass of chicha for only 7 soles and a comfortable upstairs setting. It is frequented by a mix of locals and tourists.
El Emperador, They have 2 restaurants within the city, both are very reasonably priced. They have a 13-page menu with all sorts of foods from around the world. Try the pisco sour tall.
Inkazuela, Plazoleta Nazarenas 167. Quality restaurant that serves local and Peruvian dishes. Everything feels like has been cooked with love. Quiet large portions as well .
Greens Organic, Organic and healthy food, with a Peruvian emphasis. Delicious quinoa and a fruity desert menu to die for, especially the mango ravioli with passion fruit. Try their smoothies as well. Affordable for tourists, but not the cheapest option. Near Plaza de Armas: Santa Catalina Angosta 135, Piso 2.
Yaku Mama', (at the end of the 'Gringo Alley').. Try a big fresh juice with one of their large and keenly priced breakfasts.
Yaku Mama Grill, Plaza de Armas (The sister restaurant of Yaku Mama). Cheerful English-speaking waitress named Yolanda, but is a bit short on the alpacas. Good meals.
Jack's Cafe, Choquechaca 188, (on the corner and near the South American Explorers clubhouse). Food and coffee. This is a great place to get a big breakfast complete with eggs, bacon, avocado, toast and fantastic thick shakes. Try the homemade lemonades.
...Right outside of Jack's is an empanada stand which has great rocoto salsa, a spicy salsa that goes well on the cheese or meat-stuffed pastries.