I know at least two great cafes in Katoomba. Theyre on the main street that heads down the hill, where all the cafes are.
The first one is called the Elephant Bean; they use danes coffee. The cafe recently changed owners/staff. The milk coffee (cappuccino) wasnt as good as previously, but oddly, the ristretto I had was much better. If you drink espresso or ristretto, youll notice some nice berry flavours coming out.
The second one is called (going from memory here, after playing poker til 2am the night before) the coffee bean box cafe or something like that; its a few doors down the hill from the elephant bean. They use Morgans coffee, roasted by Dean Morgan ... (I confess to not knowing who he is ... ex Tobys Estate???). You only have to notice that on the counter behind the machine, theres five grinders and a small sample roaster. These guys are serious about espresso. It seemed that theyd only just opened when I visited, but again, really nice espresso (cherries this time), milk drink was ok.
Im not sure how they go with managing about 4-5 different blends, keeping groupheads clean/free from cross contamination (in terms of flavour) ... but they seem really serious about coffee.
The biggest let down about both places, I felt was their milk prep. the Elephant bean had a kind of bubbly milk foam, the coffeebeanbox had fairly thin foam ... I guess Im spoilt drinking silky-sweet microfoam from a few cafes in sydney...
...but they both served excellent espresso!
have fun, and if you find anywhere else worth visiting, Ill be up there in a few weeks, so let me know!