Best coastal town in southern Italy in August (will have small children along too)

Just note that that is when all of Italy will be at coastal towns in the south of Italy.

Not that you can't go then, just be aware it will be wall to wall people!

This is a very broad question, especially when you include Sicily as a possibility. Note it will be HOT and it really is not feasible to day trip between Sicily and the mainland. At least if you do, what you can reach and experience in a day (or two) is minimal no matter which direction.

As mentioned by Kim, it will be crowded beyond belief. Unless you have experienced this phenomenon of Italian summer vacation you may not be prepared. Google for images of beaches in Italian in July and August to see wall-to-wall people with beach chairs/loungers and umbrellas. Most beaches are owned or managed by companies that rent out the space. You don’t just throw down a beach towel and hang out like we do in the US.

Where do you live? Are you used to summer heat? Other than sun and beach, what activities will you pursue? Knowing your interests will help us recommend possibilities locations. Puglia versus Calabria vs Campania vs Sicily...

Read this about driving in Italy and restrictions involved [ZTLs]; avoid leaving anything of value in a car when parked:

http://driventoit.blogspot.com/

August is the peak of the peak time, however not everywhere is wall to wall people.

First you should choose the region, then we can help with the towns, otherwise your question is too broad. Italy has 5000 miles of coastlines and hundreds of coastal locations that are worth staying.

If you intend to see a bit of Sicily, then you need to be in Sicily, because you can’t visit Sicily from the mainland in one day.

The best beaches are probably in these regions:
Sardinia (the best)
Puglia
Sicily
Calabria
Campania

Choose which one. Maybe do a Google Image search by entering:
NAME OF THE REGION+SPIAGGE PIÙ BELLE (most beautiful beaches).
You can probably get similar results using English.

The most beautiful beach in Sicily, and probably Italy, is at San Vito Lo Capo, which wins the ranking of best beach in Italy every year.
https://images.app.goo.gl/GuqnDryowk5L4eeK6

Thank you all. Sounds like we need to stay in Sicily. We have to travel in August due to my husband’s work schedule. We live in Washington, DC so we are very used to hot, humid miserable Augusts. We are traveling with a two year old and a four year old and their great- grandmother. The purpose of the trip is to take the great-grandmother to Sicily where her family is originally from. She has never been to Italy but her mother and father were both born in Sicily. Any recommendations as to places in Sicily would be great. My husband and I spent a month in Italy four years ago on our honeymoon and he is very comfortable driving around. Thank you all very much for your suggestions and advice.

Where in Sicily is the family connection? There's more than enough on the island to fill considerably longer than 2 weeks. It helps that you're prepared to drive, though you won't want to use the car in Palermo.

As a fellow resident of Washington DC, I feel the need to point out that here at home we tend to leave our air-conditioned home, get in an air-conditioned vehicle, and go to an air-conditioned work place/store/museum/etc. Being a tourist in Sicily (or elsewhere in most of Italy) in August is more like working as a gardener all day long in the non-air-conditioned outdoors. By no means are all indoor spaces in Italy air-conditioned. I have often walked through a museum with perspiration trickling down my back. If you see a shop or café with its door open, you can be nearly certain it is not air-conditioned. The outdoor tables under umbrellas can be fairly comfortable if there's a breeze, but you're likely to be surrounded by smokers if you sit outside.

I understand that you're limited to traveling in the summer and need to go to Sicily for family-heritage reasons; I'm just recommending that you take into consideration how physically draining the heat can be. You will probably need to take a mid-day break from the heat.

Many car rentals prohibit ferry usage, FYI.

You should try to stay in at least 3 bases in Sicily during your 2 weeks there.
Make sure your accommodation have car access and parking available.
I would stay in any of the following beach locations:

Palermo Area.
Mondello district (closest to Palermo)
Castellammare del Golfo
Cefalu
(Visit Palermo using public transportation from the above locations or drive to a lot outside the center of the city. Mondello is well served by city buses, the other two by both buses and trains).

Taormina area
I would stay in Giardini Naxos

Siracusa area:
I would stay in Fontane Bianche or at the Masseria sul Mare (Agriturismo near Avola)

If you also need to stay near Agrigento, I would stay at Lido Rossello or Scala dei Turchi.

Book early because in August it is hard to find vacancies at beach localities.