Castletown is on the north coast of Britain, around , between John O Groats and Thurso in Caithness, Highland Scotland. The A836 links the village with Thurso and Tongue in the west and with John O Groats in the east. The B876-A99 links the village with Wick in the southeast.

Much of the village is built on the old townland (or fermland) of Stanergill . The Stanergill Burn was the eastern boundary of the townland. It flows now through the eastern end of the village and so into Dunnet Bay and the Pentland Firth.

The name Stanergill can be read as meaning Stone Valley and much of Castletown was built during the 19th century boom years of Caithness as a source of flagstone. Much of the stone was processed in the harbour area of the village, known as Castlehill , and many of the streets of London were paved with it.

Modern industry in the village includes manufacture of food-storage freezers.

Castletown is the main settlement in the parish of Olrig. The name Castletown appears also in the Isle of Mann.