Japanese hot springs (“onsen”) can be a pretty amazing experiences imho. I have had some life-changing onsen trips. As with most experiences in Japan, onsen comes with a fair amount of etiquette, so make sure to read up a bit on it. However, do not get too caught up in that sort of stuff either; just enjoy yourself. Japanese are used to “gaijin” (foreigners) not knowing all the rules so don’t worry too much. Also, these days, there will be signage (often awkwardly worded) giving guidance on the onsen rules.
You will be 100% naked inside the onsen
As a result, there are separate men’s and women’s baths
The different gender sides are denoted by Japanese symbols (often with accompanying colors) on cloth flags. If you are lucky, there will be English, too, but frequently not. If unsure, just wait until someone goes in or comes out, or simply ask. You obviously do not want to mix this up and find yourself in the opposite gender’s locker room. :)
It is not uncommon for the establishment to rotate the men’s and women’s side daily or throughout the day. That is to say, the men’s side may be one entrance in the morning (or day 1), then it switches with the women’s side in the afternoon (or day 2). Each side may have slightly different types of baths, so it allows both genders to experience all types. The point, though, is that if you are staying overnight somewhere, don’t assume the men's bath is the same entrance the next morning.
Most hot springs have both inside and outside bath (“rotenburo”) in the same area. If you have opportunity, definitely try one of the outdoor baths!
Many, many onsen do not permit anyone in who has a tattoo, which is a holdover from older times that discouraged “yakuza” (japanese mafia) from entering. If anyone has a small tattoo, i believe there are ways to cover them but this is outside my area of expertise.
You will take off your street shoes at some point before entering the locker room. It could be right when you enter the building, or right at the locker room entrance. There typically will be a small step up with a shoe rack or show locker. Take your street shoes off before stepping up, then place them in the rack or locker. Sometimes there will be slippers for you to use; otherwise, simply walk around barefoot inside.
You will undress in the main locker room. There are usually lockers, though it is not uncommon to simply have a rack with wicker baskets. Place all your clothes inside lockers; go in the onsen bath fully naked. It is fine to wear glasses. Bathrooms are typically in the locker room — i’ve never seen them in the actual onsen baths.
Important Etiquette Point #1: You’ll likely be provided (or purchase / rent) two towels, a small and large towel. The large towel stays in the locker room with your clothes; don’t bring it in the shower or hot springs area; it is for fully drying yourself at the end. The small towel, on the other hand, is for use in the hot springs. You can use it for modesty, to cover your private areas — again, watch the other naked people. Its main use, though, is to strip the water off you before heading back to the locker rooms; try not to track too much water into the lockers. You’ll see folks standing using the small towels to sort of dry off before going into the locker rooms. Some use it for soaping up as well. An important point, though, is never dunk the small towel in the actual hot springs. You’ll notice people rest it on their head while they soak, or they put it on the side of the hot springs or use it as a pillow, but rarely do they put it in the actual water. The small towel will likely get pretty wet regardless, but don’t intentionally put it in the hot springs water.
Important Etiquette Point #2: Fully wash yourself with soap before entering the actual hot springs the first time. After you’ve undressed in the locker room and head into the hot springs area you’ll find sit-down showers (sometimes there is a standing shower) with soap and wash basins. Fully soap up and completely rinse there — follow the lead of all the naked japanese folks — before going into the hot springs.
If you are at a pure hot springs — one where they don’t mix the water with chlorine — then you shouldn’t need to shower afterwards. Generally, it is considered healthy to leave the minerals from the pure springs on your skin. You wash with soap before getting in but, if the water is natural hot spring, then you don’t need to rinse, let alone soap, afterwards. You’ll however have to figure out if the water is unmixed; this is usually in the smaller onsen hotels as opposed to the large more-public places.
Bonus: You’ll typically find milk machines in the resting areas once you’ve redressed and exited the locker rooms. This is a strangely refreshing drink after onsen, so partake if you can. Besides white milk, there is usually a brown milk, which "coffee milk" (rarely chocolate). another variation is an orange milk, which is “fruits milk”.
It is extremely rare to be able to drink anything inside the onsen bath, in particular alcohol.