One very cool restaurant, and famous for its Chivito. After having more than a few chivitos in my life, and as a uruguayo, I do think it's one of the best. Won't say THE best, but it definitely is a grear option, and probably among the best in Colonia. Also, the milanesas are great, and it's conveniently located- it's really easy to get there. Try the chivito canadiense (photos) and the milanesa de carne (also in the photos). It's very reasonable in their prices, and the staff is really friendly, too! It's a great stop for lunch or dinner while traveling around/through Colonia.
Most typical quick food of Uruguay. Specially recommendation: "milanesa en 2 panes" and "chivito canadiense". French fries are the most typical company for them.