The town is located at the north-western tip of Mindoro Island. It lies along the northeast shore of Paluan Bay, approximately 7 miles southeast of Cape Calavite, a major sea-lane for inter-island and ocean-going vessels. The town is surrounded by rolling and steep mountain ranges, of which Mount Calavite with an altitude of 1,491 metres (4,892 ft) is the highest peak. At Mount Calavite point, the best panoramic view of Occidental Mindoro and nearby islands could be seen.
Paluan is a predominantly rural municipality, characterized by natural vegetation and an economy based mostly on agriculture. Its dominant land use is forest cover. Forestland occupies 31,826 hectares (78,640 acres) or 56% of total land area, planted with patches of fruit bearing trees and upland field crops. A large portion of forestland is restricted as a preservation area for wildlife and watershed, the 181.5 square kilometres (70.1 sq mi) Mount Calavite Wildlife Sanctuary. This area, which also includes Mount Calavite, is a habitat of various flora and fauna, such as the rare Mindoro tamaraw and the critically endangered Mindoro bleeding-heart (Gallicolumba platenae). Paluan has a 18,016.19 hectares (44,519.0 acres) of land classified as National Integrated Protected Areas System (NIPAS) area.
Agricultural lands cover 13,842 hectares (34,200 acres) or 24% of the total land area. About 17% is devoted to rice production while 4% is planted with upland crops such as vegetables and root crops, yet 80% or 10,897 hectares (26,930 acres) of agricultural land remains uncultivated. Open grasslands cover 18% or 10,428 hectares (25,770 acres) utilized for pasture.