On our most recent trip to Uruguay we made a combination of bus and car rental. It turns out depending on where you are going or what your schedule is can be the best way to plan your itinerary as we found car rentals to be affordable and bus tickets as well, even when the country is more expensive than many others.
Buses are found between all towns and cities around the country as the country has a good quality of life, a socially conscious method of logistics. Our trip took on two parts, getting between larger cities and exploring backroads and small vineyard towns.
Bus terminals can be found in every major city. We arrived via ferry in Colonia del Sacramento from Buenos Aires Argentina. The ferry company actually sells the bus ticket in tandem if one is continuing on to Montevideo the capital which we were. You can also leave a bit of time between the transfer so that you can go and explore the historic town of Colonia del Sacramento. We recommend half of a day to see it well.
The bus to Montevideo took around two hours and it was a great ride along a pleasant route. The only stops come in Montevideo itself first in the suburbs and in successive neighborhoods until you reach one of the main bus terminals. There are buses that go onwards to the resort town of Punta del Este, onwards to Brazil and Paraguay too.
We really recommend the buses when transferring between main cities in Uruguay because they are frequent, affordable and always access the downtown.
When to rent a car is when you will have multiple stops between destinations or you wish to go out to far flung places. Uruguay is blessed with unique vineyards and terrain in its countryside. For this reason we rented a car for a day. The price came to around $40 USD and the process was very straightforward. We recommend this especially on weekends or holidays when bus schedules may be more limited.